US fuel oil stocks continue build

OREANDA-NEWS. July 23, 2015. Successive weekly record highs for US residual fuel oil stocks are likely to extend during the second half of 2015 as marine fuel demand shifts and export demand declines.

In April and July Gulf coast resid weekly stock levels surpassed 24,000bl for the first time since the US Energy Information Administration began keeping records in 1990.

A January marine fuel regulation which applies to vessels travelling within the US territorial waters increased availabilities of US residual fuel oil by shifting demand from 1pc sulphur heavy bunker fuel to 0.1pc sulphur marine gasoil (MGO). Between 18mn bl and 31mn bl (2.8-4.8mn t) of low-sulphur resid is expected to be displaced in total from the US marine fuel market in 2015.

US residual fuel oil exports were down by 11pc to 344,000 bl/d in the first four months of 2014, compared to the same period in 2015 because of soft demand from Singapore and China. US residual fuel oil production was down by 3pc to 434,750 b/d, but stocks remained high as demand fell faster than production.

US Gulf coast 3pc sulphur residual fuel oil second over first month swaps entered backwardation on 1 July for the first time since the end of March. The backwardation reflected increase in cracked residual fuel oil stockpiling in the Gulf spot market by traders for export to Asia in August. But US residual fuel oil exports, which reached their all-time peak in May 2009, have been on a steady decline since and are not expected to rebound.

Fuel oil imports were up by 3pc to 173,750 b/d during the first four months of 2015, compared to the same period last year. Imports were driven by increased arbitrage shipments of cheap Russian straight-run fuel oil used as feedstock by refineries in the US Gulf coast, as well as imports of cracked fuel oil from Mexico, Colombia and Canada for sale in the US bunkering market. Heavy bunker fuel demand in Los Angeles is expected to remain strong among Pacific Basin vessels because of cheap resid imports from Mexico and weaker competition from bunker suppliers in the Russian far east.