US crude imports from Saudi Arabia likely to push USGC HSFO prices lower: sources

New York — An increase in crude imports from Saudi Arabia into the US Gulf Coast could spell trouble for the high-sulfur fuel oil, or HSFO market, sources said.

Volumes of Saudi Arabian crude to US refiners is expected to average about 1.5 million b/d during the last week of March, up sharply from 435,000 b/d imported at the end of February and the beginning of March.

S&P Global Platts fixture report data showed as of Wednesday that as much as 12 million barrels of Saudi crude are in route to the US Gulf Coast.

The uptick in imports follows news earlier this week that Saudis cut the price of its crude to the US by $7/b for the month of April while raising its output.

Much of the crude expected to be imported is heavy, sour crude, which can be used as coker feedstock.

HSFO demand in the US through Q1 had been strong, boosted by refiner demand for the product as a coker feedstock, and at times has been run directly into the crude distillation unit, sources said.

One US trader said that several refiners went long on HSFO cracks in Q3 2019 when discounts to crude reached all-time lows.

This opportunistic hedging resulted in large volumes of HSFO imports by refiners who reaped large profits.

US Customs import data showed that more than 40 million barrels of fuel oil have been imported into the through March 4, compared to around 19 million barrels though the same time in 2019.

Multiple sources said that HSFO prices would need to decline in order to attract similar demand levels from refiners to compete with Saudi crude prices.

The USGC HSFO cash market has remained strong thus far in March.

USGC HSFO was assessed Wednesday at a discount of $11.54/b to the ICE front-month Brent futures contract.

The discount falls in line with the five-year average of $11.67/b, and remains well above the all-time discount of $29.19/b to Brent set in November 2019, amid fears of low demand ahead of IMO 2020.