US refineries hunting for Russian fuel oil
High-sulfur Russian oil, which can no longer be used as marine fuel due to new industry regulations, is now in high demand from American buyers. US refiners are buying high-sulfur fuel oil to replace supplies from Venezuela and Iran banned by US sanctions. Blending fuel oil with crude brings less final product, but it is still profitable due to big discounts on dirty oil.
American refiners are taking advantage of new shipping rules that have cut demand for dirtier marine fuel, says Reuters. They are buying cheap high-sulfur fuel oil (HSFO) for processing from Russia and the Baltic states to turn it into products like diesel, gas oil and petrol by blending HSFO with crude oils.
According to new maritime regulations IMO 2020, the shipping industry has been obliged to use cleaner low-sulfur fuels in tankers since 1 January. Thus, demand for high-sulfur oil has begun to fall. HSFO is now trading about $23 per barrel below Brent crude, which is much lower than Mexico’s Maya and Canadian heavy crudes, according to analysts of Tudor, Pickering, Holt & Co investment bank. On 15 January, HSFO was sold for $39,55 per barrel on the US Gulf Coast, down 30% from a year ago, says S&P Global Platts.
Low prices for HSFO are attracting American refiners, who have faced decreased margins due to weak global demand for refined products like diesel and petrol. This month, 2,2 million tonnes of fuel oil will arrive in the United States, according to oil analytics firm Vortexa Ltd. The majority of this oil originates from Russia and the Baltic states. Russia accounts for two-thirds of the total amount. January US imports are expected to be 54% greater than in December and the highest in at least three years, says Vortexa. Valero Energy Corporation is one of the most active purchasers of HSFO in the US Gulf Coast followed by Chevron Corp and Phillips 66, according to trade sources.
“Fuel oil [is] going directly from Russia to the US instead of Europe,” commented Lars van Wageningen from Insights Global, a Dutch consultancy that tracks fuel oil stocks in the Antwerp-Rotterdam-Amsterdam region.
American refiners are buying HSFO to replace crudes from Venezuela and Iran banned by US sanctions. Even though a blend with HSFO yields fewer barrels than processing crude oil into products, refiners still see an opportunity for big margins. “The yields aren’t quite as good, but right now, with Maya crude at a $10 discount to Brent, [refiners] are getting a $13 head start,” said Matthew Blair, a refining analyst at Tudor, Pickering, Holt & Co. The yield, or per cent of oil that can be converted to diesel or petrol, affects refiners’ profits.