Mixed Information Coming Out Of Florida On Diesel Fuel Availability

Diesel supplies in Florida as Hurricane Doria nears appear to be adequate but the reports are somewhat inconsistent.

Gas Buddy, an information service that provides gasoline and diesel prices with the data mostly supplied by a community of users, was reporting some significant outages. In a tweet, Patrick DeHaan, the head of petroleum analysis for Gas Buddy, reported near midday Friday that 39 percent of stations in the West Palm Beach area surveyed by GasBuddy were out of diesel. Other cities reported by Gas Buddy with their outages were Gainesville, 28 percent; Miami/Fort Lauderdale, 25 percent; Fort Myers/Naples, 20 percent; Orlando/Daytona Beach, 13 percent; Tampa, 9 percent; and Jacksonville 4 percent. 

Meanwhile, in brief text messages to FreightWaves, Ned Doman, the head of the Florida Petroleum Marketers Association, said "diesel seems fine." But gasoline stations were having "resupply issues," because the lines of trucks looking to refill their tanks to take more gasoline and diesel out to the stations needing supply were getting backed up. "Too many trucks, not enough racks," he texted. "Rack" is the industry term for the wholesale distribution centers that supply tankers heading out to retail stations.

Meanwhile, prices at the rack level did show signs of moving up Thursday, August 30, in anticipation of the storm. During a real or potential supply crisis like Hurricane Dorian, gasoline and diesel suppliers tend to increase the price of their "unbranded" fuel at the rack faster than they do for their "branded" customers. An unbranded customer buys fuel from a supplier and sells it at any of the thousands of stations not affiliated with a major oil retailing brand, companies like Sheetz or Racetrac. Branded fuel goes from the supplier to the stations flying that brand. So an Exxon station must buy its fuel at the Exxon rack, and it usually pays on average 2 cents more per gallon for the privilege of buying that branded fuel and operating a nationally known brand.

But during times of a potential supply shock, companies will keep their branded prices in check but often raise the price of unbranded fuel sharply. The goal is to ensure that if supplies are tight, the branded customers get served first.

To take a snapshot, the unbranded average ultra low sulfur diesel (ULSD) rack price for Miami computed by DTN for August 30 and distributed by S&P Global Platts was $1.9562/gallon, up approximately 2.5 cents/gallon from the prior day. But the New York spot price for New York harbor barge a day earlier – which the Miami market would look to as a benchmark – was up 1.25 cents/gallon, a small but early sign that rack prices in the areas to be affected by Dorian were starting to move higher than the market at large.

Unlike other hurricanes, Dorian would be expected to have a bearish impact on prices. When a hurricane rips through the Gulf of Mexico, it generally takes out some oil production, mostly offshore, and refineries in the Gulf Coast. 

But Florida produces no oil and has no refineries. It also has no pipelines. So a storm like Dorian is seen as a demand destruction event, with commerce grinding to a halt and people staying home. 

That was seen as a factor in lower commodity oil prices Friday. Even on a day when equity and other financial markets were mostly higher, the selloff in oil was significant. The benchmark WTI contract was down slightly less than 3 percent on the day and RBOB gasoline was down more than 4 percent. ULSD, which would not be expected to be impacted as much and often gets a boost from relief efforts, was down a little less than 2 percent.

S&P Global Platts Analytics has calculated that Florida's demand for distillates – which includes diesel – is about 3.8 percent of the national total at about 149,000 barrels per day (b/d). But the gasoline demand is far bigger, about 6.4 percent of U.S. demand at just under 600,000 b/d.

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