OREANDA-NEWS. The overall financial impact of the recent Midwest winter floods on US refiners downstream is likely to be limited, even if there are some operational issues, according to Fitch Ratings.

Record flooding at several areas of the upper Mississippi River system has restricted river traffic and may lead to similar restrictions downstream as the floods continue south. The flooding has already caused some terminals and pipelines to close. Additional closures would limit barge traffic and other waterborne activity at select gulf coast refineries.

We believe the near-term opportunity cost of unplanned downtime for refiners affected by the flooding or other related events will likely be limited for two reasons. First, refining margins are seasonal, with Q1 typically a weaker quarter in terms of profitability as many refiners take planned maintenance during this lower demand period.

The second reason is weather. The current El Nino system - which was responsible for much of the heavy rain that led to the flooding in the first place - also created record warmth in parts of the Northeast, weakening primary demand for heating oil. As a result of the balmy weather to date, total distillate inventories in the US rose to 153 million barrels, 22% above year ago levels and approximately 14% above their 5 year average. Within the New England region (PADD 1), distillate inventories were even higher on a percentage basis, at 63.3 million barrels, some 77% above year ago levels.