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 - LM Editorial

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

Disruptions at West Coast ports, which were resolved at the end of February, may have distorted the numbers

Growth firmly remains in the cards for both the manufacturing and non-manufacturing sectors in 2015. That was the main takeaway from the December 2014 Semiannual Economic Forecast from the Institute for Supply Management (ISM), which, in many ways, picked up where its companion Spring 2014 report published last April left off.

First quarter revenue of $1.776 billion was down 4.8 percent annually but up 4.6 percent in constant currency. And adjusted EBITDA at $51 million saw an 18.6 percent annual gain, with a 23.3 percent increase in constant currency.

Heading into 2015, the intermodal sector was faced with the same challenges it had exiting 2014, namely the West Coast port labor disruption and harsh winter weather. But even with these obstacles volumes still managed to show overall growth on an annual basis, according to the most recent edition of the Intermodal Market Trends & Statistics Report from the Intermodal Association of North America (IANA).

Forget cost cutting. Innovation and sustainability are the most important factors in business today. The companies that get it right can still win in a flat economy, says ISM CEO Tom Derry.

Article Topics

News · Global · Supply Chain · Logistics · All topics

About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review. Patrick covers 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. Contact Patrick Burnson

Comments

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


© Copyright 2015 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA