US marine fuel 0.5%S market struggling with oversupply, weak retail demand

Houston — Oversupply of low sulfur material and poor bunker demand has pushed US marine fuel 0.5%S cracks to their lowest levels in 2021, sources said May 21.

The June USGC marine fuel 0.5%S/Brent swap spread was assessed on May 20 at plus $6.70/b, its weakest premium since it November 2020, S&P Global Platts data showed.

Several US sources said retail bunker demand has remained low in the USGC due to a slowly recovering oil complex.

Two USGC suppliers said the region heavily relies on tankers to produce bunker inquiries and added that a lack of cruise ship activity due to the coronavirus pandemic has hurt distillate bunkering.

Another bearish indicator for US marine fuel has been the weakening of low sulfur values due to increased refinery production.

US Energy Information Administration data as of May 14 showed the four-week average of US refinery utilization was 86.1%, its highest since the week ended March 20, 2020 when it was 86.7%.

One US trader said USGC refiners are using lighter and sweet crudes, which increases lower sulfur fuel oil production.

US EIA data showed the average API of crude run through Texas Gulf Coast refineries was 36.61, its highest since the API began tracking the statistic in 1985.

Increased low sulfur fuel production and refinery utilization has helped boost the VGO market for refiners who use the product to run in their FCC units. Low sulfur straight run fuel oil, which demand has shifted to marine fuel 0.5%S blending, has seen weaker values due to struggling marine fuel demand.

While LSSR differentials were unchanged at ICE July Brent plus $5.75/b May 20, or an outright value of $70.86/b, the LSVGO differential rose 25 cents/b to ICE July Brent plus $6/b, or $71.11/b. This moved LSSR fuel oil to a 25-cent discount to LSVGO for the first time since Jan. 12, when LSSR was assessed at a 50-cent discount to LSVGO, Platts data showed. LSSR was assessed at a discount to LSVGO for a week leading up to Jan. 12 and had not been assessed below LSVGO again since Oct. 2019.

One US trader said that LSSR will likely face downward pressure in the weeks ahead due to struggling LSFO and HSFO global cracks until the market begins to see a bunker demand improvement.