US Gulf Coast-bound fuel oil cargoes hit 5-yr low as refinery demand weakens
By Georgina McCartney
HOUSTON, Sept 6 (Reuters) -Fuel oil exports bound for the U.S. Gulf Coast slumped to their lowest levelsince January 2019 last month, a sign of weakened refinery demand as margins have softened, analysts said.
Feedstockslike high sulfur fuel oil and other heavy residues can be refinedinto higher value products such as gasoline and diesel using secondary units.
But loadings of those products to the Gulf Coast, America's largest refining hub, fell by a third in August from the prior month to 260,000 barrels per day (bpd), according to data from ship tracker Kpler, marking a more than five-year low.
Cargoes departing Mexico for the Gulf Coast fell 25% month-over-month, hitting 77,000 bpd and their lowest level since July 2021, driving much of the decline, Kpler data showed.
"On the demand side, refinery margins aren't strong enough to incentivize U.S. Gulf Coast refiners to run their secondary units harder to process this fuel oil," said Rohit Rathhod, a market analyst at energy researcher Vortexa.
U.S. gasoline cracking margins - the spread between gasoline futures and West Texas Intermediatecrude futures RBc1-CLc1 - typically narrows as the summer driving season draws to a close. Even so, that spread is currently at around $12 a barrel, roughly $10 a barrel below last year's levels.
"We are seeing at least double digit percentage point reductions in secondary unit utilization, particularly on the East and Gulf Coast because of shrinking margins," said Rommel Oates, founder of refinery operations intelligence firm, Refinery Calculator.
Refinery Calculator expects this trend to spread more broadly across other U.S. refineries over the next few months, weighing on August fuel oil loadings.
Gulf and East Coast combined operating refining capacity accounted for just under 60% of total U.S. capacity as of June 2024, according to an analysis of the most recent data from the Energy Information Administration.
ATTACKS HINDER FLOWS
Fuel oil deliveries from east of Suez to the U.S. Gulf Coast also fell last month as ongoing attacks on vessels crossing the Red Seacontinued to push shippers to divert around the horn of Africa, avoiding the faster Suez Canal route, according to Vortexa analysts.
Yemen's Iran-aligned Houthi militia has been disrupting global shipping to display its support for Palestinians in the Gaza conflict, targeting vessels in the Red Sea.
Two vessels carrying fuel oil, theAFRODITI and SEAMAJESTY, departed Iraq around two months ago for Louisiana and sailed around the Cape of Good Hope to avoid the Red Sea, contributing to a drop in U.S. Gulf Coast imports in August, said Vortexa's Rathod.
"Red Sea attacks and the summer demand in the Middle East where they burn fuel oil for power generation definitely seem to have taken a toll on fuel oil imports into the U.S.," Rathod added.
Saudi imports of fuel oil jumped to 385,000 bpd in August, Kpler data show, rising by a quarter on the month and by just over 40% on the year.
Reporting by Georgina McCartney in Houston; Editing by Liz Hampton and Diane Craft
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
