((Automatic translation by Reuters, please see disclaimer https://bit.ly/rtrsauto)) by Shariq Khan and Nicole Jao
A twin wave of record heat and hurricanes is expected to test the resilience of U.S. refiners in the coming weeks, raising the risk of extreme volatility in fuel prices in the middle of the peak season, officials said.
The Atlantic hurricane season, which runs from June to November, poses an annual threat to US refineries. Half of the country’s refining capacity, at more than 18 million barrels per day, is located along the Gulf Coast, which is highly exposed to tropical storms. The US is the largest fuel market in the world.
This year, refineries may have to deal with more storms than usual. Government forecasters expect as many as seven major hurricanes in the coming months, double the annual average of three major Atlantic hurricanes with winds of more than 111 miles at a time.
Citgo Petroleum Corp. reduced production at its Corpus Christi refinery (165,000 barrels per day) on Saturday and plans to operate the facility at least during the passage of Tropical Storm Beryl () on the Texas coast, according to sources.
Texas’ largest ports have also shut down operations and shipping traffic in anticipation of Beryl, which is expected to strengthen into a hurricane before hitting the region early Monday.
The intensity and timing of Beryl, which became the earliest Category 5 hurricane on record (), portends an active and disruptive season, said Neil Crosby, commodities analyst at Sparta Commodities.
“Hurricanes remain the biggest wild card for gas prices,” said Patrick De Haan, analyst at GasBuddy. “There is no better reminder of that than Beryl,” he added.
Evacuation orders ahead of storms can lead to inventory build-ups and increase demand for fuel, leading to higher prices for gasoline, diesel and other refined products, Mr. De Haan.
If a major storm hits the Gulf Coast refining system, it could reduce fuel supplies by up to a million barrels per day and cause extended shutdowns or even permanent shutdowns, according to the US Food Administration’s Energy Information Administration (EIA).
Hurricanes headed for the Gulf Coast could also reduce crude oil supplies by similar amounts, with the offshore area of the Gulf of Mexico home to about 14% of US crude oil production.
In 2021, US oil and gas companies suspended production of more than 1.7 million barrels of oil after Hurricane Ida.
The shutdown of about 1.5 million bpd of crude oil production and refining capacity could cause gasoline prices to rise by 25 to 30 cents, according to the EIA.
WARMER WEATHER
In addition to hurricanes, refiners are facing more problems this year related to scorching heat.
The latest monthly US temperature report predicts above-average temperatures for much of the US in July, which is typically the warmest month.
Excessive temperatures have far-reaching effects on commodity supply chains, including oil and fuel, JPMorgan analysts wrote last month.
Most refineries are designed to operate between 32 and 95 degrees Fahrenheit. Triple digit temperatures can lead to equipment failure and reduced refining capacity.
Last year, extreme heat led to a 500,000 bpd reduction in the production of refined products on the Gulf Coast, JPM analysts wrote.
Similar effects can be felt this year. Unit failures reported by Phillips 66 PSX.N at the Wood River, Ill., refinery last month were likely due to heat waves, according to Mr. Kloza and other industry experts.
MONEY AT YOUR FINGERTIPS
An intense maintenance season earlier this year allowed US refiners to make major upgrades and carry out detailed maintenance work that had been repeatedly postponed due to increased post-pandemic demand and supply disruptions.
In theory, that should allow refiners to be better prepared for hurricane season, said Alex Hodes, an oil analyst at brokerage StoneX.
The drop in demand in recent months has also helped refiners build fuel stocks, which should serve as a buffer in the event of an outage.
U.S. gasoline inventories have risen by about 4 million barrels since the start of April to nearly 231.7 million barrels per day. June 28, which corresponds to the seasonal average for the past five years with the exception of 2020.
Inventories of distillates, including diesel and heating oil, have risen by 3.7 million barrels since the start of April and stood at 119.7 million barrels per day. June 28, which is slightly lower than the historical average excluding 2020, when inventories were greatly increased by COVID. -related demand destruction.
“There’s not a lot of room for error,” said Tom Kloza, head of energy analysis at the Oil Price Information Service. “I’m waiting to see what happens
