Analysis: USGC 0.5%S bunkers remain pressured amid vague exports outlook

New York — A retreating petroleum complex in March signaled swift price declines for 0.5%S marine fuel in US Gulf Coast wholesale and retail markets, but Houston 0.5%S bunkers remain depressed as exports activity remains blunted.

Prices for Brent and physical barges and bunkers in the Gulf Coast set fresh lows in April, but as the futures markets have rebounded over the last few months, Houston 0.5%S bunkers is still lagging, hampered by limited demand, a consistent theme highlighted by sources in recent months.

On Aug. 17, front-month ICE Brent was assessed at $45.38/b at 2:30 pm ET, with assessments averaging $44.84/b so far in August. The August average posting at the oil market close is 68.2% higher than April, which averaged $26.66/b.

USGC 0.5%S wholesale fuel made gains almost in lockstep with crude over the same period. In August, bulk market USGC 0.5%S assessments have averaged $312.66/mt, 64.6% greater than the average in April at $189.94/mt.

Meanwhile, while 0.5%S on the Houston bunkers market has trended higher, gains have been less significant. So far in August, Houston 0.5%S bunkers assessments have averaged $297.18/mt ex-wharf, 46.6% higher than April's average of 202.67/mt.

The weaker gains have amounted to an inverted spread between wholesale and retail markets.

Pre-coronavirus, Houston 0.5%S bunker assessments averaged a $56.49/mt premium over USGC 0.5%S wholesale in January through March. From Late March through early August, the spread fell sharply and flipped to minus $5.50/b on April 17, the first inverted price spread in the 0.5%S bunker assessment history. While uncommon, inverted spreads between HSFO physical barges of and spot market IFO 380 prices have occurred in the past.

Houston 0.5%S bunkers have averaged a 1.63/mt discount to the USGC bulk market 0.5%S since April and in August alone averaged a $17.25/mt discount shortly after sinking to one of $28.75/mt, the lowest one on record.

DISRUPTED EXPORTS, UNCERTAIN OUTLOOK

Sources in the Houston bunker market have commonly pointed to lower spot pricing around the ship market and noted tepid demand. With limited takeaway capacity, the abnormal spread between wholesale and retail 0.5%S has intensified.

Key statistics on the exports of US petroleum-related products and container volumes at the Port of Houston underscore the reports of dull market activity and pressured pricing.

One source told Platts that spot market activity was especially week in June as loading inquiries became less frequent.

The monthly average of weekly reports of US exports of crude oil and petroleum products from the US Energy Information Administration declined for three consecutive months from April through June, which averaged just over 7.37 million b/d, the lowest since January of 2019.

With Houston's close access to USGC refineries, the port plays a predominant role in the US' ability to export crude and products. The loss of global demand as the world shut down and arbitrages opportunities closed have weighed heavily on Houston 0.5%s bunkers.

So far in the third quarter of 2020, weekly US EIA reports on the exports of US crude and products has averaged just over 7.67 million b/d, an uptick as world demand appears to have begun reopening.

Estimates of container throughputs at the Port of Houston also note a decline in Q2. In Q1, total container exports from the Port of Houston were estimated at over 377,000, while Q2 container exports fell to just under 324,000, Platts data shows.

As the consumer markets appear to be begin reopening and oil demand drives higher, market participants active in the Houston area will be closely following upcoming figures detailing export levels as the potential for a second wave of coronavirus closures looms.