By Georgina McCartney
HOUSTON (Reuters) – Fuel oil exports to the U.S. Gulf Coast fell to the lowest level since January 2019 last month, a sign of weakened demand for refineries as margins have softened, analysts said.
Feedstocks such as high sulfur fuel oil and other heavy residues can be refined into higher value products such as gasoline and diesel using secondary units.
But supplies of these products to the Gulf Coast, America’s largest refining hub, fell by a third in August from the previous month to 260,000 barrels per day (bpd), according to data from ship tracker Kpler, marking a low in more than five year marks. .
Cargo traffic from Mexico to the Gulf Coast fell 25% month-on-month to reach 77,000 barrels per day, the lowest level since July 2021, driving much of the decline, Kpler data showed.
“On the demand side, refinery margins are not strong enough to incentivize U.S. Gulf Coast refineries to ramp up their secondary units to process this fuel oil,” said Rohit Rathod, market analyst at energy researcher Vortexa.
U.S. gasoline crack margins – the spread between gasoline futures and West Texas Intermediate crude futures – tend to tighten as the summer driving season comes to an end. Still, that spread is currently around $12 per barrel, roughly $10 per barrel below last year’s level.
“We are seeing at least a double-digit percentage point decline in secondary unit utilization, especially on the East Coast and Gulf Coast due to shrinking margins,” said Rommel Oates, founder of refinery intelligence firm Refinery Calculator.
Refinery Calculator expects this trend to spread more broadly across other US refineries in the coming months, weighing on August fuel oil loads.
Combined operating refining capacity on the Gulf and East Coasts accounted for just under 60% of total U.S. capacity as of June 2024, according to an analysis of the latest data from the Energy Information Administration.
ATTACKS OBSTACLE FLOWS
Fuel oil deliveries from east of Suez on the US Gulf Coast also fell last month as persistent attacks on ships crossing the Red Sea continued to prompt shippers to bypass the Horn of Africa, avoiding the faster Suez Canal route, according to analysts from Vortexa.
Yemen’s Iran-allied Houthi militia has disrupted global shipping to show support for Palestinians in the Gaza conflict, attacking ships in the Red Sea.
Two fuel oil ships, the AFRODITI and SEAMAJESTY, left Iraq for Louisiana about two months ago 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, Rathod said from Vortexa.
“The Red Sea attacks and summer demand in the Middle East, where they burn fuel oil for power generation, definitely seem to have taken their toll on US fuel oil imports,” Rathod added.
Saudi fuel oil imports rose to 385,000 barrels per day in August, Kpler data showed, up by a quarter month-on-month and just over 40% year-on-year.
