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US refiners move to domestic production, reduce fuel oil imports, reduce heavy, coarse imports, favorable over high sulfur fuel oil due to Middle Eastern demand and Russian supply issues, strengthening fuel oil market
(Reuters) – Fuel oil was imported into US Gulf refineries, marking a record drop in June as tougher global supplies prompted them to run heavier, sour crude crude.
When refineries perform heavier sour coarse slates, they produce heavier residues. This is processed in secondary units to produce higher value products such as gasoline and diesel.
Gulf-bound fuel oil imports fell at 213,000 barrels per day in June compared to 430,000 bpd in June 2024, according to ship tracker Kpler.
Refineries along the Gulf Coast account for more than 55% of the US total refinery capacity.
The dip was driven by a decline in Mexican crude oil volume, and in June it was just 22,000 bpd since April 2020, a low from 71,000 bpd that month.
As seasonal demand for electricity combustion in the Middle East skyrocketed for air conditioners between June and August, the supply of high sulfur fuel oil around the world was strengthened as US sanctions on Russian oil further strengthened long-term analyst supply.
This has resulted in higher prices and has made the raw materials economical refinery throughput compared to crude.
According to Argus Media prices, Mexico’s flagship Maya Heavy Crude averaged $4.20 per barrel in May and an average of $4.20 in May, with a daily premium. Gulf refiners prefer Maya because they typically run medium and heavy oil.
Higher prices for high sulfur fuel oil have led refiners to reduce the processing of their raw materials and use heavier crude oil, a refinery source said.
“U.S. refiners measure crude oil as a raw material against crude oil, so running high sulfur fuel oil with rough margins is less attractive, so we’ve seen lower imports, even in low stock positions.”
In the long run, US refiners are weaning imported residual ingredients and rely on changes in coarse diets with domestic production for refinement, heavier medium crude imports and fine-tuned refinery compositions.
“This is why we saw low fuel oil stocks and slightly lower domestic fuel oil yields since mid- to late last year,” Kasaune said.
According to the Energy Information Administration, US residual fuel oil stocks in the Gulf fell to their lowest since March 1996 last week.
“In light of the ban on Russian oil imports, imports along the Gulf coast have been a clear downward trend since Russia’s invasion of Ukraine,” Kasaune added.
Reported by Georgina McCartney in Houston Edited by Marguerita Choy
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