Freight demand returns to Houston, further increasing truck rates

IHS Markit’s Houston office has been releasing periodic updates on the impact of Hurricane/Tropical Storm Harvey on the crude oil, refining and chemical sectors in the Gulf Coast area. The company also has been looking at logistics issues that have resulted from the storm.

According to the company’s summary dated Sept. 13, 2017, major Gulf coast ports have all reopened, though, on an individual basis, Coast Guard mandated restrictions may still be enforced.

IHS Markit reports that the three major Class I railroads in the area—Union Pacific Railroad, BNSF Railway and Kansas City Southern Railway—effectively have restored service on their networks, but delays remain. By Sept. 9, Union Pacific Railroad had reduced the number of miles out of service from 1,750 at the peak of disruption to 50 miles. KCS and BNSF said their Houston area subdivisions were all operational. However, service delays are expected in light of a backlog of freight and reduced train speed limits because of repair work.

Freight demand is returning to Houston as immediate emergency relief gives way to longer-term rebuilding needs, IHS Markit says, which is placing additional pressure on already rising truck rates.

Tightness in the transportation sector impact is being felt nationwide, the firm says. For the week ending Sept. 2, the U.S. average dry van spot market rate posted by DAT Solutions, a load board operator, rose 12 cents to $1.90 per mile. In Dallas, outbound spot truck rates rose 26 cents per mile. On the Dallas-to-Houston lane, however, spot rates increased by $1.60 per mile, IHS Markit notes.

Trucks need fuel to operate, and IHS Markit estimates that 13 of the 20 affected refineries along the Gulf Coast are at or near normal operating rates. Five of the other 7 are actively in the process of restarting or ramping up runs.

“The amount of capacity offline is still significant,” the firm says, adding that it estimates that around 1.7 million barrels per day (b/d) of distillation capacity, or 9 percent of U.S. total, is offline as of Sept. 12. This is down from around 4.8 million b/d (27 percent of U.S. total) at the peak of the flooding, IHS Markit adds.

Because of the amount of refining capacity that remains offline (and perhaps Hurricane Irma-related market jitters), gasoline prices have been slow to decline, the firm says. It has now been nearly two weeks since the peak of Gulf Coast flooding and the NYMEX RBOB (reformulated blendstock for oxygenate blending) spot price remains about 20 percent above its pre-Harvey levels.

IHS says gasoline prices may decline sharply in the coming week as arriving European product cargoes and Hurricane Irma affect demand.

The largest declines are likely to come in the states that saw the greatest late August/early September spikes in pricing, IHS Markit says. East of the Mississippi, markets could see prices decline 5 to 10 cents per gallon per week. The declines could begin in earnest with the first day of autumn, according to the firm.

Florida terminals are being resupplied currently, IHS Markit notes. Marathon’s facilities appear to be open throughout the state, and that company has the most extensive network of logistics in Florida.

A persistently wide Brent-West Texas Intermediate (WTI) price spread indicates that U.S. crude oil markets need more time to return to normal in the wake of Hurricane Harvey, IHS Markit says. The price differential, about $3 per barrel before the storm, is now more than $6, a sign that U.S. crude oil supplies are increasing surplus relative to the international market.

That surplus has emerged as a portion of Gulf Coast refining capacity remains offline (although most facilities are recovering). At the same time, port and pipeline closures earlier this month has caused a disruption in U.S. crude oil exports.

Looking at natural gas liquids, IHS Markit says the U.S. Energy Information Administration (EIA) published the first weekly propane/propylene inventory post-Hurricane Harvey, which indicate that supplies built by 6.3 million barrels over the week ended Sept. 1.

In the chemicals sector, 10 percent of total U.S. ethylene production is offline currently, and total U.S. ethylene consumption capacity has declined in a similar range, with three or four crackers still idled and at different stages of the startup process. The new ethylene units that were slated to come online over the next six months are expected to be delayed by a minimum of 30 days, IHS Markit reports.

The amount of confirmed propylene production assets offline dropped to 13 percent of chemical grade propylene (CGP) and polymer grade propylene (PGP), with refinery grade (RGP) supply offline also lower at 7 percent. However, IHS Markit reports, nearly 60 percent of assets are either in restarting activities or reduced. RGP production is also returning with refineries in restarting activities and ramping up.

Consumers of propylene and its derivatives have observed a stronger rate of recovery and now seem to be limited by propylene supply. IHS says the propylene market remains difficult to predict given that producers and consumers are down; however, price pressure will be sharply upward from prestorm levels based on stronger derivative capability against limited supply and higher propane costs.

IHS Markit estimates suggest that approximately 24 percent of U.S. polyethylene production capacity remains offline, while another 30 percent of U.S. capacity is operating at reduced rates.

Regarding polypropylene, IHS Markit estimates that 98 percent of North American nameplate capacity is now online. Rail cars are shipping out of the Gulf Coast, but supply issues continue in specific cases where applications require specified grades. “The market is heavily focused on supply over price this month, with a wide range of price premiums for September product,” IHS notes.

For a complete report from IHS Markit, which is headquartered in London, visit http://bit.ly/2eUZilB.

» Publication Date: 14/09/2017

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