London — Nearly half of all HSFO product from the Baltic Sea has been making its way across the Atlantic, according to new data.
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In July, 46% of all HSFO leaving the Baltic Sea made its way to the US, according to the data intelligence firm Kpler, totaling more than 7.10 million barrels.
The sour product has seen a pull from stateside for use in cokers since the beginning of the year, alongside more limited production of the product, which has led to a tightness of availability within Europe.
For the first seven months of 2020, on average more than 35% of the product has been making the voyage, up from 10.8% for the same period of 2019.
June saw a total of 43% of Baltic Sea exports heading to the US, with May and April taking 41% and 18%, respectively.
Of the exporting countries, unsurprisingly the vast majority of product has come from Russia, followed by Estonia.
Of all product that left Russia via the Baltic Sea in July, 50% was destined for the US, totaling 6.91 million barrels.
In July, the US imported 10.68 million barrels of HSFO, with 69% of that from Russia's Black and Baltic Seas.
The high sulfur fuel oil market (3.5%S) has seen trade flows shift since the implementation of the International Maritime Organisation's sulfur cap that began January 1, as the majority of July's Baltic Sea exports head west to the US.
Fundamentally, HSFO has seen market dynamics change as the market adjusts to VLSFO [0.5%S marine fuel] as its new complaint fuel and the ongoing impact of the coronavirus pandemic.
European refiners looked to optimize VLSFO in the approach of the new sulfur regulations, restricting production of HSFO and thus restricting overall availability of the product post-IMO 2020.
Additionally, OPEC+ oil production cuts have reduced sour crude availability, further threatening availability of 3.5% fuel oil, as these crudes typically yield a higher percentage of the product.
The port of Rotterdam reported a sharp fall of its oil product throughput in the first half of the year due to fewer fuel oil volumes.
It had previously reported a fall in trading of fuel oil between Russia and Singapore, for which Rotterdam has been the throughput location. This was a result of Russian fuel oil being shipped directly to the US. Sources have noted more limited offers into the Rotterdam region on the back of this strong pull west.
The discount of USGC HSFO to the ICE front-month Brent futures contract narrowed significantly at the beginning of July. On July 9, USGC HSFO was assessed at a discount of just $3.48/b to Brent, its narrowest discount since July 11, 2019, when it was $3.06/b, S&P Global Platts data showed.
Market sources said an arb export play was part of the reason for the increase, though multiple participants noted that refiner demand for HSFO had picked up from May and June.
One US refiner said that until sour crude prices decline, they will continue to buy HSFO as an alternative feedstock.
Traditionally, HSFO has made its way to Saudi Arabia on utility demand, for use in desalination plants and power plants to meet heightened air conditioning demand during the summer months. But due to the pull of demand from the US, Saudi Arabia has looked to Singapore in a rare reverse arbitrage move to source displaced volumes.
In the first seven months of 2020, on average 1.9% of total Baltic Sea exports went to Saudi Arabia, a total of 1.78 million barrels. This is compared with 5.1% over the same time period of 2019, which saw 5.74 million barrels head to the Red Sea.