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Danger Ahead

June 13, 2024 POTEN & PARTNERS


We are in June and that means, that the Atlantic hurricane season, which runs from June 1st to November 30th, has officially started. On May 23, the National Oceanic and Atmospheric Administration (NOAA) announced their 2024 Atlantic hurricane season outlook and they expected it to be the most active one America has ever experienced.


According to the NOAA, there is an 85% chance of an above normal season. They call for 17 to 25 named storms, of which 8 to 13 are forecast to become hurricanes and 4 to 7 major hurricanes (storms with winds of more than 110 miles per hour). To put that in perspective, during the 30-year period between 1991 and 2020, the average was 14 named storms and three major hurricanes. In this Tanker Opinion we discuss how hurricanes can have a major impact on the tanker market, both directly and indirectly. There are two main reasons for the increased hurricane risk this year.


First, last month sea-surface temperatures in the North Atlantic were warmer than at any time on record in May. They were at levels usually only reached in August. The temperatures are higher than in 2005, the year when a record 15 hurricanes were formed, including the infamous Katrina and Rita, which devastated the U.S. Gulf coast and claimed 1,800 lives.


The second reason is that the weather patterns in the Pacific are expected to switch from El Niño to La Niña during peak hurricane season. La Niña tends to decrease wind shear in the tropical Atlantic, making it easier for storms to form, grow and persist there.


The extent of the damage and disruption caused by a major hurricane, depends very much on the location (where it makes landfall) and the strength of the associated winds. In September 2005, hurricane Katrina, followed closely by hurricane Rita, caused major damage to the U.S. oil and refining industry. It forced the evacuation of 482 production platforms and 79 drilling rigs in the Gulf of Mexico, shutting in 1.4 million barrels per day (Mb/d) of oil production. It also caused significant damage to refineries in Louisiana.

At one point, 1.8 million bpd of refining capacity (over 10% of total US capacity) was offline due to Katrina. Many refineries were offline for weeks or months due to flooding. The U.S. government released 11 million barrels of oil from the Strategic Petroleum Reserve, although that had limited impact because refining was the bottleneck rather than crude supply.

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