Fuel oil shipments to the US Gulf Coast reach a 5-year low as refinery demand declines

Exports of fuel oil destined for the US Gulf Coast plunged last month to their lowest level since January 2019, reflecting a weakening of refinery demand as margins have softened, analysts said.

Feedstocks such as high sulphur fuel oil and other heavy residues can be further processed into more valuable products such as gasoline and diesel using secondary units.

But deliveries of those supplies to the Gulf Coast, America's largest refining centre, dropped by a third in August from the prior month to 260,000 barrels per day (bpd), according to data from ship tracker Kpler, a more-than-five-year low.

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Shipments leaving Mexico for the Gulf Coast were down 25 per cent month-over-month, at 77,000 bpd, their lowest since July 2021, and were driving the majority of the fall, the Kpler data showed.

"On the demand side, refinery margins aren't strong enough to incentivise U.S. Gulf Coast refiners to run their secondary units harder to process this fuel oil," said Rohit Rathod, a market analyst at energy researcher Vortexa.

U.S. gasoline margins, or the spread between gasoline futures and West Texas Intermediate crude futures, typically narrow going into the end of summer driving season. Currently, though, that spread stands at around $12 a barrel, or about $10 a barrel below where it was this time last year.

"We are seeing at least double digit percentage point reductions in secondary unit utilisation, particularly on the East and Gulf Coast because of shrinking margins," said Rommel Oates, founder of refinery operations intelligence firm, Refinery Calculator.

Refinery Calculator said it would expect this trend to spread more broadly across other US refineries over the next few months, weighing on August fuel oil loadings.

As of June 2024, Gulf and East Coast combined operating refining capacity accounted for just under 60 per cent of total US capacity, according to the most recent data analysed by the Energy Information Administration.