HSFO wins second chance in US as a feedstock: sources
The implementation of the International Maritime Organization’s sulfur reduction regulations for bunker fuel has sidelined high sulfur fuel oil from the global marine fuel pool, but feedstock supply tightness on the US Gulf Coast has created an outlet for Russian fuel oil – giving it a second life in the US.
Limited availability of feedstock on the USGC due to a closed arbitrage from Europe along with the pull of the bunker fuel blending pool has kept USGC vacuum gasoil and straight run fuel oil differentials well-supported, putting them on a higher shelf than refiners are willing to reach for. This has forced refiners to look at alternative options for feedstock.
“FCC units have to find alternatives,” a feedstocks market source said.
While HSFO demand for bunkering has evaporated due to the IMO 2020 sulfur shift, demand for the product as a refinery feedstock has jumped, sources said.
HSFO was being used as coker feed or for blending with light sweet crudes prior to the debut of the IMO 2020 regulations, although sources said this was on a limited basis. When the primary outlet for HSFO demand was for bunker fuel, sources said HSFO prices were often too high to use HSFO as a feedstock or blendstock.
“Russian fuel oil has flowed into the USA for years,” a second feedstocks source said. “What’s obviously different now is there is a limited HSFO market in Europe and [available cargoes] will want to find their way to refiners who can handle it,” a second feedstocks source said.
USGC HSFO was assessed at an average discount of $5.06/b to the ICE front-month Brent futures contract between January 1, 2019 and July 31, 2019, according to S&P Global Platts data.
From August 1, 2019 through Tuesday, the USGC HSFO-Brent spread averaged a discount of $18.82/b, the data show.
PBF RAMPS UP USE IN Q4
Multiple sources said HSFO blended with light sweet crude can create a medium sour crude, with the HSFO acting as a cheap feedstock. In addition, refiners with cokers have increased their purchases of HSFO as a feedstock.
Platts assessed high- and low-sulfur vacuum gasoil barges at the NYMEX March WTI futures contract plus $14.30/b and futures plus $16.20/b, respectively, on Wednesday.
PBF Energy executives said during the company’s third quarter of 2019 earnings call it planned to increase the HSFO intake of its cokers to 50,000 b/d in the fourth quarter of the year. Several other refiners in the USGC said they had increased their HSFO purchases too.
The widening of the discount for HSFO to crude in the second half of 2019 opened up HSFO arbitrages from countries such as Russia that had seen drastic declines in exports to the US.
US imports of HSFO from Russia fell from 28.54 million barrels in 2016 to 22.843 million barrels in 2018, US customs data show. Imports of HSFO from Russia from August through December 2019 alone totaled 26.703 million barrels, the data show.
A third feedstocks market source said it is likely that many of the imported cargoes were M-100 straight run fuel oil.
“The API on that is maybe 14-16, so it comes in as fuel oil on the customs entry, 24.9 [API] is the cut off,” the source said.