US fuel oil markets see values decline due to tariff implementation, anticipate trade flow shifts

US fuel oil markets began to see immediate shifts in sentiment following the March 4 implementation of President Donald Trump's tariffs on energy imports from Mexico and Canada, although much uncertainty remains for both the short- and long-term outlooks.

The US began imposing a 25% tariff on all imports from Mexico and a 10% tariff on Canada-origin energy imports, according to the US Federal Register website communications. The 10% tariff on imported Canadian energy was initially announced in early February and is taking effect now as part of a broader 25% economywide US tariff regime on the nation's two closest trading partners.

"Mexican oil will now likely go to Europe rather than US Gulf Coast, so [the tariffs] impact [European] barges negatively and US positively," a US-based source said, adding that a "reduction in supply" would be the primary driver for the shift in US markets.

The US Gulf Coast is home to the majority of the nation's refining capacity and regularly imports Mexican crude for processing and Mexican HSFO for coker feedstock.

Another source echoed that sentiment and added that additional market volatility was expected, given the new administration's approach to trade policies.

"It's about trading around tweets," a second US fuel oil market source said. "Some downward pressure on 0.5%S market, but not seeing a great deal of blendstock on offer."

Another market sources cited Mexico's inherent flexibility as an advantage over Canadian energy producers, who could encounter fewer relief valves for barrels originally earmarked for export to the US.

"I believe we will see more appetite from USGC refineries to buy Latin American barrels, and Mexico sending more barrels to East," a third source said. "The Canadian barrels in the end will have to go to US even with the tariffs because of the lack of options."

Market impact was mixed following the March 4 implementation, with paper fuel oil segments seeing the spread between the USGC HSFO swap and the 3.5%S Euro barges swap – known as the arbitrage – shrink to its narrowest point in more than a month.

Platts assessed the April US Gulf Coast HSFO swap/Brent prompt-month crack swap spread at minus $6.75/b, 15 cents stronger from minus $6.90/b assessment a day prior. It's the narrowest the spread has been since minus 85 cents/b on Jan. 16, Platts data shows.

The front-month paper HSFO crack in Europe, one of the elements of the crack swap, ended the US session at minus $5.75/b, down 85 cents/b from March 3. However, the other key element of the crack swap, the arbitrage, moved up to minus $1/b from minus $2/b the previous day.

The outright price for the HSFO April swap reflected the drop in crude oil futures, also a consequence of the news on US tariffs as concerns arose on a broader trade war. Platts assessed the April HSFO swap at $63.75/b, a 50 cents/b drop on the day, and the lowest level for the prompt-month HSFO swap since $63.35/b on Dec. 9, 2024.

ICE Brent prompt-month crude futures contract was assessed at $71.01/b as of 2:30 pm ET, a 61 cent/b drop on the day.

The physical USGC HSFO market moved in lockstep with receding paper market values, with some additional pressure felt from selling interest that tested notional value.

Platts assessed US Gulf Coast HSFO barge pricing down 44 cents day on day at $63.32/b, with offer-side action failing to find counterparty buying interest during the Market on Close assessment process.