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The Hurricane Pattern on CPP Freight rates

Aug. 28, 2020

The Hurricane Laura has roared throughout the US gulf region this past week, resulting significant delays or closures in major ports and ship channels, especially in Louisiana. A chemical leak has also been reported near Lake Charles on Thursday with shelter-in enforced around the area.  According to Platts, two Lake Charles refineries and five more in Texas were closed in advance of Laura’s landfall, over 2.3 million b/d of refining capacity.  The five Texas refineries should restart soon after the safety inspections.

Simultaneously, the CPP freight rates have jumped phenomenally in the East side of Atlantic Basin; the benchmark TC2 (MR2 UKC/USAC) rocketed from WS 85 to WS 150 in the mid of the week.  As refineries in the US Gulf were closed prior to the Hurricane, we have observed a surge in demand of refined products from the Europe, and thus continued pushing the freight levels upward.  However, the hurricane-related damage to oil infrastructure did not materialize and TC2 freight rates have already corrected themselves down to WS 120 at week’s end.  On the other side of the Atlantic Basin, TC14 (MR2 USG/UKC) has remained under pressure during the week due to the limited cargo, settling at WS 87.5 at the time of reporting.

Looking at the historical assessments of TC2 and TC14 during the 2017 hurricane season and now, an identical pattern can be captured with a week-long of roller-coaster for TC2 while continuous downward trend for TC14 (see below figure).  As we move into Week 36 for this year, we expect the downward correction in TC2 to be carried over from this Friday. In the meantime, the release of tonnages from CPP floating storages and the weakening demand amid the end of the summer season could put continued downward pressure on the US Gulf market.

Figure 1 – TC2 & TC14 Freight Pattern – Hurricane Season 2017 vs 2020