Subscribe to our free, weekly email newsletter!


Logistics managers wait to see if Hurricane Sandy drives up energy prices

According to IHS Global Insight, supply chain managers are likely to see an accumulation of crude supply and a shortage of refined products in the coming days which will inevitably put upward pressure on gasoline prices.
By Patrick Burnson, Executive Editor
October 31, 2012

In addition to infrastructure damage, Hurricane Sandy has forced the idling of about 70% of the East Coast’s oil refineries. This does not bode well for the supply of refined oil products as capacity was already quite tight prior to the shutdowns.

According to IHS Global Insight, supply chain managers are likely to see an accumulation of crude supply and a shortage of refined products in the coming days which will inevitably put upward pressure on gasoline prices. Already, the November reformulated gasoline blendstock for oxygenate blending (RBOB) gasoline futures price had increased.

The commercial shutdown of the East Coast is likely to result in gross domestic product losses that may outweigh infrastructure damages. And, while some of these losses will be offset by ex-ante “preparation” sales as well as clean-up, repair and reconstruction activity – thus lessening the “observable” GDP growth impact in the fourth quarter – part of the loss in economic activity is permanent (for example spending at restaurants).

Combining all of the above disruptions from Sandy, early estimates point toward total economic losses of around $30-$50 billion.

Derik Andreoli, Ph.D.c., a senior analyst at Mercator International LLC and Logistics Management’s popular Oil & Fuel columnist, said he would expect any price impacts to be relatively small and temporary.

“There are bigger problems, to be sure. The state of the roads is an unknown, and millions are without power. Fuel pumps at gas stations and cardlock facilities don’t work when the power is out.”

Hospitals and other critical service providers will be running on power provided by diesel generators. It is unknown whether the emergency stocks held at these facilities will be sufficient (though I suspect the answer is that these stocks will be sufficient).

The extent of the damage to the oil/fuel supply chain is at this point unknown.

“I suspect that the bulk of the damage was experienced by individual retail stations and cardlock facilities, but there is a lot of redundancy in this part of the system,” said Andreoli. “There should be enough refined fuel stock on hand to manage the post-Sandy rise in demand, which will, of course, be stymied by the sheer amount of damage.”

Over the next week, disaster response will shift to disaster recovery, and this effort will likely drive up demand for distillates (diesel), but Andreoli does not expect that this will have too great of an impact on prices.

“In short, there are a lot of unknowns at this point, but unless there was significant damage to the system – and this doesn’t appear to be the case – price impacts should be minimal. There is good news in that the largest of the refineries, Philadelphia Energy Solutions, is already back online, and the Tainter refinery never went offline,” said Andreoli. “The Colonial Pipeline which brings crude and refined products up from the Gulf of Mexico is not fully operational as a consequence of a power outage, but the infrastructure has not been damaged.”

About the Author

image
Patrick Burnson
Executive Editor

Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

Company says the Cloud offering allows customers to respond more quickly to new business opportunities, without significant upfront cost and implementation times.

As e-commerce continues to take a bigger piece of the holiday package delivery pie, it stands to reason that companies need to be proactive and prepared in order to deliver premium service during the busiest time of year, which is rapidly approaching. And that is exactly what transportation giants UPS and FedEx are doing this year. How are they doing it exactly? The primary step they are taking is to up their numbers of seasonal staffers.

A recent hearing of the Subcommittee on Coast Guard and Maritime Transportation suggests that the U.S. Merchant Marine industry may be poised for a major comeback.

Spot market freight volumes for the month of August remained elevated compared to seasonal norms, according to data issued this week Portland, Oregon-based freight marketplace platform and information provider DAT.

Factors such as rising freight rates, shrinking capacity, an increased desire for global supply chain visibility, have all worked together to drive the need for instituting a culture of continuous improvement in logistics operations and transportation management systems (TMS). To meet today's complex logistics challenges, managers are stepping into a more streamlined, automated approach to transportation management in order to function at optimal levels both domestically and internationally. Read the latest special report.

Article Topics

News · Global · Supply Chain · Logistics · All topics

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2013 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA