(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON Oct 29 As the Northeast United States
locks down in the path of Hurricane Sandy, the freakishly large
tropical storm careening in from the Atlantic, the main impact
is likely to be on fuel demand rather than supply.
Regional product prices initially rose on Monday, but the
storm is more likely to have a bearish impact later this week.
The region is a major net consumer of refined products such
as gasoline, diesel and aviation fuel and covers more than 30
percent of its demand by imports and even more by pipeline
deliveries from refineries on the U.S. Gulf Coast.
Hurricane Sandy will therefore depress regional fuel demand
more than supply and should be bearish for crude and product
prices at the margin, provided there is no serious and sustained
damage to the refineries clustered in Pennsylvania and New
The East Coast of the United States (PADD 1) consumed almost
5.3 million barrels per day (b/d) of refined products last year,
according to the Energy Information Administration (EIA), the
independent statistical arm of the U.S. Department of Energy.
But local refineries supplied just 3.6 million b/d, leaving
the region relying heavily on imports (513,000 b/d) and receipts
from the Midwest (PADD 2) and the Gulf Coast (PADD 3) (1.6
million b/d) to satisfy the rest of demand (here).
As refineries in the path of the storm shut down or cut run
rates, local product supplies are set to fall. But demand is
likely to fall more, as airports close and road and rail traffic
The biggest regional supply/demand imbalance is in jet fuel.
Massive aviation hubs like New York's John F Kennedy Airport
consumed 548,000 b/d of kerosene-type jet fuel in 2011. But
regional refineries supply just 77,000 b/d, with the rest coming
via pipelines from the Gulf Coast and small quantities imported.
The other big imbalance is in distillate fuel oils such as
road diesel and No 2 home heating oil. PADD 1 refineries
supplied just one-third of local demand (370,000 barrels per
day) last year, with the remainder imported (162,000 b/d) or
piped up from the Gulf (710,000 b/d).
The gasoline market is more nearly balanced, with local
refineries producing around 2.9 million b/d compared with
regional consumption of 3.1 million b/d.
There is a natural tendency to compare Sandy's impact with
previous hurricanes such as Katrina and Rita. But the situations
are fundamentally different. Katrina and Rita hit a region that
was a massive net supplier of gasoline, diesel and jet to the
rest of the country. Sandy is on course to a hit an area that is
a big net consumer.
Severe damage to one or more of the region's refineries,
such as Bayway in Linden, New Jersey, would obviously worsen the
existing tightness in the diesel, heating oil and jet markets.
But if the refineries survive the storm with minimal damage,
the net effect will be a big hit to demand as lockdowns cause
consumption of transportation fuels to plunge.
(editing by Jane Baird)