Summary
- US refiners shift to domestic output, reducing fuel oil imports
- Running heavy crude preferred over high-sulphur fuel oil due to cost
- Middle East demand and Russian supply issues tighten fuel oil market
(Reuters) – Fuel oil imports into the refinery hub on the U.S. Gulf Coast hit a record low in June as tighter global supplies prompted refiners to run more heavy, sour crude.
When refineries run a heavier, sourer crude slate, they produce more heavy residue, which is either processed in a secondary unit to produce higher value products like gasoline or diesel.
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Gulf Coast-bound fuel oil imports hit a record low at 213,000 barrels per day in June, down from 233,000 bpd on the month, according to ship tracker, Kpler, compared with 430,000 bpd in June 2024.
Refineries along the Gulf Coast account for more than 55% of total U.S. refining capacity.
The dip was driven by a drop in Mexican crude volumes, which in June slipped to their lowest since April 2020, at just 22,000 bpd, down from 71,000 bpd on the month.
Global high-sulphur fuel oil supplies have tightened as seasonal demand for power burn in the Middle East rises between June and August when air conditioning demand spikes, while U.S. sanctions on Russian oil have further tightened supplies in the long term analysts said.
This has driven prices higher and made the feedstock a less economic refinery throughput compared with crude.
The daily premium for high-sulphur fuel oil over the Mexican flagship, Maya heavy crude averaged $4.20 a barrel in May, the widest monthly average premium since October, according to prices from Argus Media. Gulf Coast refiners favor Maya as they typically run medium and heavy oil.
Higher prices for high-sulphur fuel oil have driven refiners to process less of the feedstock and use more heavy crude, a refinery source said.
“U.S. refiners are weighing up fuel oil against crude as a feedstock, and so we’ve seen lower imports, even with a low stock position, as the margins are just not quite as attractive to run more high-sulphur fuel oil over crude,” said Austin Lin, principal analyst, refining and oil products at Wood Mackenzie.
Longer term, U.S. refiners have been weaning off imported residual feedstocks and relying more on domestic output for refining, a changing crude diet with more heavy, medium crude imports, and tweaked refinery configurations, said Roslan Khasawneh, senior oil analyst at Kpler.
“In part, this is why we have seen U.S. fuel oil inventories trending lower to multi-decade lows and slightly higher domestic fuel oil yields since mid to late last year,” Khasawneh said.
U.S. residual fuel oil stocks on the Gulf Coast fell last week to their lowest since March 1996, according to the Energy Information Administration, at 10.63 million barrels.
“Gulf Coast imports have been on a clear downtrend since Russia’s invasion of Ukraine, given the U.S. ban on Russian oil imports,” Khasawneh added.
Reporting by Georgina McCartney in Houston Editing by Marguerita Choy
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