The US ban on Russian refined product imports has cut the supply of Russian feedstock and blendstocks to US refiners, forcing them to seek alternative suppliers, including Algeria and Iraq.
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In particular, sophisticated, high-conversion refineries along the US Gulf Coast's refinery row have depended on Russia's older, inefficient plants to supply them with high sulfur fuel oil and residuals for use as feedstocks for their coking units to make diesel and other distillates.
The US imported about 500,000 b/d of Russian refined products in 2020, including gasoline and gasoline blending components headed mainly on the US Atlantic Coast and US West Coast as well as heavy, refinery feedstocks like residuals and fuel oil heading to the US Gulf Coast.
"Last year, the US imported around 345,000 b/d of straight run residuals and [vacuum gas oil] from Russia. That volume will not be easy/quick to replace and could hinder gasoline and diesel production near term," according to S&P Global Commodity Insights analyst Lenny Rodriguez.
Swapping out Russian barrels
The price of USGC HSFO fell March 9 to settle in tandem with lower oil prices, which reacted to comments by the UAE ambassador to the US, who said his country would put pressure on OPEC to increase oil production.
USGC HSFO was assessed at $93.53/b March 9, down $16.41 from $112.94/b March 8.
But a look at trade flows shows that refiners are swapping out higher sulfur Russian barrels for Algerian and Iraqi feedstocks of both low sulfur and high sulfur straight-run fuel oil.
Jan 1-March 2, USGC imports of Russian HSFO totaled over 9 million barrels, or about 161,200 b/d, according to US Customs data.
Valero, with its heavy USGC coking capacity, took over 3.4 million barrels, or about 56,400 b/d, for use at its Norco, Louisiana, refinery, as well as its plants in Texas City and Port Arthur, Texas.
However, a look at trade flows shows that since Russia's military action into Ukraine and the subsequent US ban, refiners are swapping out higher sulfur Russian barrels for Algerian and Iraqi feedstocks of both low sulfur and high sulfur straight-run fuel oil.
So far in March, Kpler commodity tracking data shows 139,000 b/d fuel oils heading to the USGC, with Algeria supplying 34,000 b/d, Mexico 22,000 b/d, and 24,000 b/d coming from storage in the Bahamas. About 36,000 b/d is coming from the Mediterranean.
The two Algerian cargoes contain Low Sulfur Straight Run Fuel Oil from Skikda and are arriving in early April, while a 700,000 barrel cargo of High Sulfur Straight Run Fuel Oil has been fixed from Iraq arriving in early May.
USGC LSSRFO prices also softened, in line with lower crude prices, assessed at $134.14/b March 9, down from $150.98/b March 8.
More diverse VGO supply
So far in 2022, imports of VGO into the USGC totaled 4.96 million barrels or around 81,000 b/d. Russian barrels accounted for about 1.75 million barrels, including 310,000 barrels which arrived in Houston March 1, US Customs data shows.
However, USGC VGO sources are more diverse and include exporters like Saudi Arabia, Colombia, Greece, and Canada, which helped steady prices. Platts assessed USGC VGO cracks versus Brent for both 0.5% and 2% barrels March 9 unchanged from March 8 at $25/b and $18/b, respectively.