Atlantic Braces for Hyperactive Hurricane Season

La Niña Transition Raises Concerns Amidst Projections of Elevated Storm Activity and Impacts on Maritime Operations


The conclusion of El Niño, transitioning into neutral El Niño-Southern Oscillation (ENSO) conditions as projected by the United States National Oceanic and Atmospheric Administration (NOAA) by the latter part of the second quarter, alongside a 60% likelihood of La Niña developing by late Northern Hemisphere summer, portends an increased probability of a robust hurricane season in the Atlantic. Typically commencing in June, the season escalates, reaching its zenith towards the end of the third quarter and the early fourth quarter.

The year 2023 witnessed a relatively subdued hurricane season, which sustained utilization rates of US Gulf Coast (USGC) refineries above average by the conclusion of the third quarter. Projections from Colorado State University recently suggested 11 hurricanes and 23 named storms for 2024, marking the highest April forecast since 1995 and approximately 60% above the hurricane and storm activity average.

Gasoline Inventory Reduction Expected

While uncertainty persists regarding the phenomenon’s intensity, the shift to La Niña and an active hurricane season bodes well for stronger refining margins propelled by refining capacity losses in the USGC. Unplanned disruptions during the phenomenon and gasoline inventory reductions are more likely to occur. Simultaneously, reduced refined inputs will eventually exert downward pressure on crude prices following an initial peak, thus eventually supporting margins across all basins.

However, BRS Tanker cautions that the exact price developments will hinge on the depth and duration of oil production shutdowns. A combination of reduced refinery operations and production closures could potentially widen the Brent-WTI spread during the third quarter, driving crude oil demand from Asia, with Very Large Crude Carriers (VLCCs) standing as primary beneficiaries, while gasoline import demand might outstrip outcomes.

Positive Signals in the Panama Canal

The Panama Canal Authority recently announced a rise in transits to 32 vessels from the previous month’s 27, as drought conditions ameliorate following the cessation of El Niño. According to BRS Tanker, this could lead to fewer inefficiencies for MR tankers as the year progresses, with USGC rates likely to observe fewer peaks and eventually normalize.

Return of Sanctions on PDVSA

As anticipated, the US government chose not to renew general licenses on Venezuelan oil granted in October. This decision was in response to the lack of progress by Nicolás Maduro’s administration in holding free and fair elections as previously agreed upon in October last year.

In response, the US government has allowed a 45-day wind-down period during which existing businesses (particularly Venezuelan crude exports) can be conducted. Additionally, it has stated that “the Office of Foreign Assets Control of the Treasury will also consider specific license applications to continue activities beyond the end of the wind-down period, on a case-by-case basis.”

BRS Tanker also highlights the notable renewal by the US government of special licenses granted to companies such as Chevron, Eni, and Repsol. As indicated, the reinstatement of sanctions should cause Venezuelan crude exports to the US to decline, while those directed towards China should increase, a shift expected to favor demand for “gray” fleet VLCCs and Suezmax over Aframax.

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