US residual fuel, bunker markets jump as Russia invades Ukraine

US physical dirty products markets jumped Feb. 24, following Russia's military invasion of Ukraine.

While some markets came off from highs earlier in the day as crude prices fell at the close, retail bunker prices held firm on supply uncertainties.

US Gulf Coast high sulfur fuel oil and USGC marine fuel 0.5%S briefly touched their highest levels since September 2014 at the European close.

USGC HSFO was assessed at $80.51/b, the highest since $83.35/b Feb. 14, S&P Global Platts data showed. USGC marine fuel 0.5%S was assessed at $700.25, less than $7 off its all-time high Feb. 14.

The ICE front-month Brent futures contract fell to $99.05/b, from $103.37, between 11:30 ET and 2:30 ET.

The backwardation in the paper markets on the USGC HSFO and USGC marine fuel 0.5%S swap curves widened by 60 cents/b and 50 cents/b through June 2022, respectively.

Residual fuel oil market could face feedstock shortage

Sources said the Russian invasion could have a profound effect on current oil trade routes and prices if it lasts for long term.

The conflict was likely to have a knock-on effect for several products, due to a shortage of feedstock for USGC refiners, a US fuel oil source said.

"How is the US going to fill [their cokers] if it won't buy M-100?" the source said. "Cokers are going to have a massive margin and [I am] not sure if there is enough Mexican [HSFO]."

The USGC could look to import more Canadian heavy crudes to offset the loss of Russian M-100 fuel for refiners, the source said. A shift away from feedstocks from the Black Sea would require a long-term lack of exports. The pricing impact from such a change would take several weeks to reach the spot market.

A total of 4 million barrels of dirty petroleum products were fixed from the Black Sea to the USGC in January, according to data intelligence firm Kpler.

Feedstock traders said earlier in the week that the promptest vacuum gasoil cargo on offer for would not be delivered until mid-March.

Bunker markets mixed

Bunker prices at some ports reached multi-year and all-time highs.

Marine fuel 0.5%S delivered New York rose $39 on the day to an all-time high of $798/mt. MGO delivered Philadelphia was assessed up $40 on the day at $949/mt, its highest since $954.50/mt Sept. 19, 2014, Platts data showed.

Multiple sources on the US Atlantic Coast said suppliers were not lowering offers, as crude decreased through the day.

Offers for MGO in New York ranged from $910-$1000/mt at 11:30 am ET, according to sources. One source reported a deal for MGO after market close at $910/mt, suggesting that prices were holding firm even as crude fell. The source said that the next-highest offer for MGO in New York was in the $935-$940/mt range.

Prices on the US Gulf Coast also tracked the increases in the global oil complex, with stronger indications of up to $775/mt for marine fuel 0.5%S in Houston early in the morning, according to sources.

A market source said that buyers were booking vessels even at those high levels, possibly anticipating further increases. The 0.5%S in Houston was assessed at $745/mt ex-wharf, up from $727/mt Feb. 3, following a rebound in global oil by the session's end.

"Really awful, craziness today," a bunker source said about the way market operated Feb. 24. Several other participants in Latin America echoed the sentiment.

The strongest increase in the region was seen in Balboa, where the 0.5%S soared $33 to $789/mt ex-wharf. Indications were at up to $800/mt early in the morning, according to sources.

Bunker sources cited uncertainty in the market, but buyers were active. "Prices might continue to go up, regrettably this is only starting," a market source said.