Latin American HSD demand spurs record USGC waterborne premium over pipe

The US Gulf Coast high sulfur diesel waterborne premium over pipeline reached a record high of 41 cents/gal April 1, as Latin American demand skyrockets for all distillates.

Waterborne distillate values rose to end the week based on increased demand from Latin America, coupled with shipping uncertainty stemming from the Russian invasion of Ukraine. Not only are vessels harder to find now, but their fuel costs have spiked dramatically, many to record levels. Entities have also seen freight rates skyrocket, but waterborne premiums on the USGC have only moderately increased until this week.

USGC HSD waterborne, with up to 2,000 ppm sulfur, was talked at a discount of 5 cents/gal to USGC ultra low sulfur heating oil, with a 15 ppm sulfur content.

S&P Global Commodity Insights' Platts assessed the HSD waterborne at $3.3840/gal, up 42.81 cents on the day. The bulk of that was to counter a sharp drop the day before in the HSD pipeline assessment.

Little high sulfur material is produced anymore in the US as road and heating oil use has moved to required 15 ppm ULSD and ULSHO levels in the last decade. But demand for diesel and jet fuel on Colonial Pipeline from Houston to New York Harbor has made it even more non-essential to send HSD up the pipe.

Export demand has only increased, however, for power generation needs. Latin American traders April 1 were awaiting results of a five-cargo HSD tender by Cammesa, Argentina's wholesale power administrator, due March 31. Cammesa in early February awarded an 18-cargo tender to six entities for delivery into the spring months. The latest tender was considerably smaller and perhaps a reflection of the difficulty countries are having in obtaining diesel, jet fuel and HSD because of market tightness, especially in the main sourcing hub of the USGC.

The 41-cent waterborne premium for USGC HSD beat the previous record spread of 29.25 cents on Dec. 24 and 29 in 2014, at the height of the polar vortex winter in the US, according to Platts assessments by S&P Global.

Waterborne jet fuel barrels on the USGC rose 8.50 cents to pipeline jet plus 10 cents/gal based on source indications of value at that level, while diesel spreads rose 2.95 cents to 8.20 cents for waterborne over pipeline. "Whoa!" said one Latin American market source about the surge in USGC premiums. "And all these countries in Latam are importers."

Flurry of fixtures

Latin American entities have coped with the rise in prices to record levels since the Russian invasion by reducing volumes, canceling tenders and buying short-notice more often than usual, and by paying more of a differential for the barrel.

Petroperu and Petroecuador broke a monthlong lull in large Latin American tenders recently, but paid up to do so. Petroecuador paid a $7.45/b premium to Platts benchmark USGC ULSD pipeline for seven cargoes of 50 ppm premium diesel, compared to slight discounts for previous tenders this year, sources said.

Petroperu was heard paying a premium $8.80/b, said to be nearly double the premiums paid for January and February tenders. The company tendered for three cargoes of B5-S50 biodiesel and eight cargoes of ULSD, B511 cargoes, with awards going to Phillips 66 for the former and Valero for the latter. But sources said April 1 that Petroperu only awarded four out of eight ULSD cargoes, failing to receive an offer for the other four.

A second source noted there was a flurry of fixtures this week to Brazil, with many by state oil company Petrobras, likely for distillates, while Mexico's state oil company Pemex is fixing ships with a focus on gasoline and distillates. Shipping sources said a limited list of available cargoes was left.

The second source said Mexico is playing catch-up. "They will struggle to stay wet; same for Colombia that imports 5-6 cargoes per month."