By Ahmad Ghaddar and Stephanie Kelly
LONDON/NEW YORK (Reuters) – The United States is taking advantage of record-low prices of one of the world’s dirtiest fuels by buying record volumes, which it intends to upgrade into cleaner products before new shipping rules take effect, trading and analyst sources say.
U.S. trade sources said it recently had become economical to ship fuel oil from countries such as Russia, boosting imports of the product into the United States.
This comes even as prices for high-sulphur fuel oil (HSFO) on the U.S. Gulf Coast trend lower while demand for high-sulphur fuels sags globally.
Fuel oil in the region traded at $41.56 per barrel on Nov. 6, a three-year seasonal low, data from S&P Global Platts shows.
For a graphic on Gulf Coast HSFO prices sink to 3-yr seasonal low, click https://fingfx.thomsonreuters.com/gfx/editorcharts/USA-PRODUCTS/0H001QXHK9BR/eikon.png
Fuel oil prices in Europe have also fallen to record lows, which has helped make exports to the United States economical.
For a graphic on European high-sulphur fuel oil barge prices, click https://fingfx.thomsonreuters.com/gfx/editorcharts/OIL-PRODUCTS-FUELOIL/0H001QXHM9BY/eikon.png
According to data from oil analytics firm Vortexa, U.S. imports of fuel oil from Russia and former Soviet Union (FSU) countries surged to at least a multi-year high of 1.35 million tonnes in October, and they are expected to hold firm at similar levels in November.
For a graphic on U.S. Gulf Coast fuel oil imports by region, click https://tmsnrt.rs/2WV0o5R
“The broader rise in FSU-U.S. flows since the beginning of this year has therefore helped to offset the impact of the collapse in Venezuelan fuel oil imports in the wake of U.S.-led sanctions,” Vortexa said.
Vortexa separately noted that the United States had received fuel oil from Jordan at the end of October, with another tanker set to arrive around the end of November. The route from Jordan to the United States is unusual, Vortexa said.
New regulations on marine fuel by the International Maritime Organization that take effect on Jan. 1 will restrict sulphur content in shipping fuels to a maximum 0.5%, from 3.5% now.
Complex U.S. refiners have long been expected to benefit from the new regulations because they have greater capability to break down cheaper, heavy crudes into higher-margin, compliant products.
They have vacuum distillation capacity to break down straight-run fuel oil, which comes directly from a crude unit, as well as coking capacity, which upgrades cracked fuel oil, a by-product from complex refining methods.
The increased imports may be related to U.S. refiners looking to run fuel oil directly to their cokers as the price of high-sulphur fuel oil declines ahead of IMO 2020, said Sandy Fielden, energy analyst at financial services firm Morningstar.
“If fuel oil is a good deal cheaper than crude, you can run it direct to the coker to produce gasoline and diesel and increase refinery returns,” Fielden said.
“If it proves profitable then we should see more of it in the coming months as HSFO prices fall.”