LA bunkering changes an outlier for 2018
While spot bunker demand could see an uptick in the first half of 2018 in Los Angeles and Houston, few changes that would drive demand growth are planned for other major US ports in 2018.
Prices of high-sulphur 380cst in Los Angeles and Long Beach, California could stay under pressure in 2018 compared with the competing port of Singapore. The announced entrance of Peninsula Petroleum as the fourth bunker fuel supplier in Los Angeles, scheduled for January 2018, may pressure the other three local marine fuel suppliers’ profit margins. Any decline in prices could shift demand to Los Angeles from the competing port of Singapore, as well as from the US west coast ports of San Francisco and Seattle.
Imports of residual fuel oil from Mexico to the US west coast may also ramp back up, further expanding supply. Historically, the bulk of the fuel oil sold for bunkering in Los Angeles was sourced from the 330,000 b/d Salina Cruz refinery on Mexico’s Pacific coast. But the refinery was shut down from mid-June through the end of July because of a fire and from 7 September through the beginning of November after an earthquake. As a result, fuel oil imports from Mexico to California dropped by 56pc to 4.03mn bl in the first nine months of the year, compared with 9.19mn bl for the same period in 2016. To make up for part of the lost Mexican barrels, Los Angeles marine fuel suppliers increased their fuel oil imports from Peru. California imports from Peru jumped to 2.37mn bl in the first nine months of the year, compared with 220,000 bl during the same period last year. As Salina Cruz’s operating capacity returns to normal in 2018, Los Angeles bunker suppliers will likely replace temporary Peruvian fuel oil supply with cheaper Mexican fuel oil.
Bunker demand in Houston is likely to rebound after a weak second half of 2017, but much of the increase is likely to reflect a return to normal operations following Hurricane Harvey in August 2017.
Demand for US Gulf fuel oil cargo exports into the Asia-Pacific markets could also increase. Reduced exports of Russian fuel oil to Asia-Pacific, as a large-scale refinery upgrade program in Russia reduces the country’s resid availabilities, may prompt buyers to seek alternative supply. This in turn could prop up Gulf coast heavy bunker fuel prices. But the US Gulf heavy bunker fuel market will remain long. Average weekly Gulf coast fuel oil stocks dropped to 22.36mn bl from January through November 2017, returning to 2014 levels after fuel oil stocks reached historic highs in January-November 2016 of 24.38mn bl. The EIA began reporting stock levels in 1990.
The US east coast remains short fuel oil, with no fundamental changes expected in 2018. Discounted European fuel oil availability is likely to constrain buyer interest in the US east coast bunker markets.
Global marine fuel regulations commencing in January 2020 will alter the bunker landscape. Refiners and blenders have begun to work on creating competitive 0.5pc sulphur marine fuel blends to meet the anticipated future demand. With the commencement of the marine fuel regulation now two years away, demand for long-term residual fuel oil storage tank rental has evaporated. Oil storage tank and barge owners will be cleaning out tanks and barges to repurpose them, from residual fuel oil storage to storage for the new bunker blends. But the bulk of the logistical upgrades are anticipated in 2019.