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Peak hurricane season looms with no room for U.S. refining outages

·2 min read

By Laura Sanicola and Erwin Seba

NEW YORK/HOUSTON, June 30 (Reuters) - A busy Atlantic hurricane season and tight fuel supplies could further strain U.S. refiners who already have the lowest oil-processing capacity in eight years, analysts warned, adding this would boost prices for gasoline and diesel.

In recent years, hurricanes temporarily knocked out processing capacity along the U.S. Gulf Coast, home to 47% of the nation's motor fuel production. When the pandemic slashed demand for fuel, U.S. refiners closed five facilities, while another plant suffered catastrophic storm damage.

Those closings sapped U.S. fuel inventories, and now demand is surging again. Gasoline stocks are down 8% amid forecasts for an above-normal number of storms for the seventh consecutive year.

"We are heading into hurricane season in the tightest refining market we've ever been in on a global scale," said Rory Johnston, founder of the Commodity Context newsletter.

A storm was brewing this week in the U.S. Gulf of Mexico and two weather disturbances were heading to the Caribbean Sea. Last year, Hurricane Ida cut more than 3 million barrels per day of refining capacity and led to the closing of a large Louisiana refinery.

In the aftermath of Ida, gasoline prices, rose between 5 cents and 10 cents per gallon in parts of the southern and eastern United States. While current U.S. fuel prices have retreated from this year's early June records, they remain more than $5 per gallon in a fifth U.S. states, according to the American Automotive Association.

Gasoline inventories are hovering around 221 million barrels, hundreds of thousands of barrels below the five-year seasonal average and refiners are running near peak capacity.

"We're banging on the door to 95% refinery utilization. That indicates really strong demand. But if we get much higher that's when we get explosions, outages," said Robert Yawger, director of energy futures at Mizuho.

Gulf Coast refiners are not taking any unusual preparations for this year's storm season, according to sources familiar with the preparations.

Many have already hardened plants and raised generators to withstand flooding. Staff have prepared for flooding by elevating electrical equipment, piling sandbags, and securing loose equipment in the days ahead of severe weather events.

But Phillips 66, which built a flood wall to protect its Alliance, Louisiana, facility, still was forced to close the facility after catastrophic flood damage.

(Reporting by Laura Sanicola; Editing by David Gregorio)