Traders are shifting fuel tankers around the world like chess pieces to stay one step ahead of Mother Nature.
One natural disaster is difficult enough to trade around. This week, traders have been hit with not one, but four, as three hurricanes and an earthquake rattled the western hemisphere. That’s upsetting the typical flows of commodities across the globe, with potential arbitrage opportunities opening and closing with each new weather forecast.
“The traders are trying to follow the money, but the hurricanes are getting in the way,” said Andy Lipow, president of Lipow Oil Associates in Houston. “Traders are reacting to the changing arbitrage and the weather that is forcing them to change plans on what seems like a daily basis.”
It’s hard to know where tankers are best placed when gasoline prices are as choppy as the seas beneath them. Prices spiked in the U.S. after Hurricane Harvey, drawing gasoline, diesel and jet fuel from all corners of the world. But some prospective cargoes from Asia and Europe have been canceled as prices plunged almost as fast as they soared. Now, supplying fuel to Florida after Hurricane Irma may be eased after the U.S. waived the Jones Act, allowing foreign vessels to carry fuel between U.S. ports.
“In some cases, the trader may deviate from an intended destination due to a better opportunity elsewhere,” said Conor Stone, a marine transport advisor at McQuilling Services, LLC. “You have to assume that for the trader to incur the extra expense, they have identified an arbitrage opportunity offsetting the expense.”
When Hurricane Harvey shut down Texas refineries and ports late last month, Mexico, America’s biggest customer, quickly made alternate plans for supply. In July, 72 percent of Mexico’s gasoline sales came from imports. With the quick route from the U.S. Gulf Coast shut off, the trading arm of Petroleos Mexicanos, PMI, booked vessels to haul fuels like gasoline and diesel from Europe, the Caribbean, Asia, Canada, and the rarest origin of them all: New York.
Typically a fuel importer, New York Harbor was tapped to supply fuel-thirsty Mexico. The tanker Largo Sun loaded and set off for Tuxpan on Mexico’s East Coast. But now that ship is in a holding pattern, with Tuxpan closed as Hurricane Katia strengthens on its way to the coast.
“Pemex was ahead of the game,” said Sandy Fielden, director of research and commodities for Morningstar Inc. “They’ve got a bunch of cargoes on hand.” But now, with the hurricane shutting ports, “they’re going to get hit with higher prices,” he said.
Mexico Earthquake
Early Friday, Pemex was awoken by a new nightmare on its West Coast: a magnitude 8.2 earthquake with an epicenter near its largest refinery in Salina Cruz. The facility, which was shuttered for at least 45 days after a fire in mid-June, was forced into a temporary shutdown after the quake, Pemex officials said.
There were three ships full of fuel headed to West Africa from Europe that were diverted to the U.S., Bloomberg vessel-tracking data show. One of the two that were redirected to Florida is going to Quebec instead. The third, which was sailing to New York, made an abrupt halt Wednesday. Late Thursday, it received orders to turn around and head back to West Africa.
Florida Tankers
After the refinery and pipeline outages starved Florida of fuel just ahead of Irma, the state has to depend on what tankers can get into its ports as quickly as possible, said Mason Hamilton, an analyst with the U.S. Energy Information Administration.
At least one ship didn’t take the risky journey south to Florida’s East Coast — it turned to Virginia instead after loading in New York. On the West Coast of Florida, vessels are working to refill emptying tanks.
Amid the shuffle of tankers across the Atlantic Ocean and Gulf of Mexico, a few unlucky ones were in the path of Hurricane Irma. Once a ship is in that kind of situation, profits are no longer the priority, according to Hamilton.
They are getting “out of dodge right now,” he said.
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Source: Bloomberg
