Are Oil Refineries Prepared for Hurricane Season Despite Low Stockpiles

As forecasts expect a more active season this year, oil markets in the United States are preparing for hurricane season amid already low oil product supplies. This hurricane season, which begins next month and ends in November, could see more than ten storms form in the Atlantic, with September being the peak. According to the National Oceanic and Atmospheric Administration's (NOAA) Climate Prediction Center, three of them are expected to become major storm systems. These forecasts were mostly influenced by the ongoing La Nina and above-average Atlantic temperatures.

A market expert has reported that "NOAA predicts 14 to 21 named storms (winds of 39 mph or higher) in the 2022 hurricane season, with 6 to 10 of them becoming hurricanes (winds of 74 mph or higher) and 3 to 6 major hurricanes" (categories 3, 4, or 5; with winds of 111 mph or higher). According to a NOAA news release issued on Tuesday, these ranges have a 70% confidence level.

However, in the run-up to hurricane season, limited product stocks and rising gasoline and diesel costs are contributing to market concerns. According to the EIA's (Energy Information Administration) Weekly Petroleum Status Report, refineries in the United States are running at above 90% capacity as of May 13, while total motor gasoline inventories continue to fall and are roughly 8% below the five-year average. Although distillate fuel inventories climbed in the week ending May 13, they are still 22% below the five-year average, as are crude stockpiles, which are 14% below the same.

Since the outbreak, 1 million Barrels Per Day (bpd) of refinery capacity in the United States has been permanently shut down. As per the EIA data, operational refinery capacity in the United States was a little over 18 million bpd in 2021, the lowest since 2015. Rising demand, along with limited refining capacity and highly tight distillate markets, has driven down product stocks in the United States to levels below seasonal averages and multi-year lows, with record-low inventories reported on the East Coast.

The oil industry is particularly apprehensive about the disturbing weather season this year, with refineries and offshore platforms frequently shutting down and evacuating for safety reasons during the more severe storms. "We might have a problem this summer, I'm telling you, “One industry expert remarked, referring to the current situation. He went on to say that there is a global scarcity of refining capacity, and that the energy sector is currently "totally nuts."