Will Frankenstorm Sandy Take on East Coast Refineries?

Hurricane Sandy, while still off the coast of the Eastern United States, has already had another moniker bestowed upon it; due to the storm’s projected arrival date, on or close to Halloween, it has come to be known as Frankenstorm.

If forecasts are accurate, the hurricane is headed straight for the East Coast refining industry. After passing through the Bahamas at 20 miles per hour on Thursday, the storm is now being felt in the New York and New Jersey area — only heavy rain now, but the worst is yet to come.

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The Wall Street Journal reported that chances were “increasingly slim that the storm would veer into the Atlantic Ocean and leave the East Coast alone.”

With New York Governor Andrew Cuomo’s office warning of “heavy rain, high winds, flooding, tornadoes, coastal surges, and widespread power outages,” the storm could affect both supply and demand for gasoline in the region. The East Coast hurricane could also impact tanker traffic, disrupting crude and gasoline imports, even if the hurricane does not hit the region directly.

There are five East Coast refineries situated within Hurricane Sandy’s landing point that are capable of refining 1.2 million barrels per day of gasoline or distillates, according to Lipow Oil Associates. These include PBF Energy in Delaware, Phillips 66 (NYSE:PSX) in Linden, New Jersey, and Monroe Fuels and Sunoco (NYSE:SUN) in eastern Pennsylvania.

“If it’s headed toward the Linden, N.J. area, even if it affects the refineries, demand goes way down because there’s no one on the road,” president Andrew Lipow of Lipow Oil Associates told CNBC. Of the regions 1.2 million-barrel capacity, 400,000 barrels are used by New Englanders.

As supplies on the East Coast are tight heading into the winter months, Again Capital analyst John Kilduff said that product prices will rise.

However, the overall economic impact of the storm could be minimal. Lipow expects that retail gasoline prices will continue to fall from the current national average, which according to AAA, was $3.599 on Thursday. RBOB gasoline futures indicate this as well; in late trading on Thursday, futures were trading up 1.5 percent at $2.63 per gallon. “Right now the futures market is acting like the only thing we lose is supply,” Lipow said.

The rapid decline in oil prices began after the U.S. Energy Information Administration announced that domestic gasoline supplies had risen last week. Reuters reported on Thursday that the world’s spare oil production capacity outside of Iran rose in the last two months as gasoline demand decreased in the United States.

Yet, as the Wall Street Journal pointed out on Friday, “a further hit to already falling U.S. gasoline demand could have far-reaching consequences,” as the global oil supply cushion means the “Obama administration still has room to squeeze Iran further.”

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