US bunker demand leads fuel oil cracks to narrowest levels since 2012: trade

US residual fuel oil cracks to crude have narrowed to levels not seen in years as demand from the bunker sector supports prices, sources said.

The Gulf Coast 3%S fuel oil-Brent crack stood at negative $9.80/barrel Tuesday, the narrowest level since summer 2012, when cracks were in the negative $7-$9/b range, Platts data show.

“I just think on a relentless crude drop it’s pretty typical the fuel lags,” an East Coast broker said Tuesday.

Indeed, Brent crude has tumbled about $10.25/b, or 18%, in 2015 compared with a roughly 14% decline in Gulf Coast HSFO prices.

The Gulf Coast HSFO-Brent crack has narrowed eight of the last 10 trading days.

A Gulf Coast fuel oil trader said bunker demand is keeping fuel oil prices from falling as precipitously as crude oil.

“Or it’s touching down in terms of flat price,” the trader said of fuel oil values.

Bunker fuel demand in Houston and New Orleans has been good in the last six to eight weeks, market sources have said.

Buying interest has been driven by lower fuel oil prices and firm demand from cruise liners, although volumes have been lower compared with those in previous years.

“You can see more deals done in both ports but most of them are for 50-100 mt, but still suppliers are still making money,” a bunker trader said.

Fog conditions at the ports of Houston and New Orleans also have caused supply tightness in both markets due to vessel congestion.

In the US East Coast, low prices have pushed buyers to burn and store more bunker fuel.

Ship operators have become less concerned with slow steaming and other fuel-saving practices, while others have used the discounted bunkers to replenish fuel stocks, an East Coast trader said.

“If fuel has been over 50% of operating costs and its cost goes down 50%, or more like 70%, owners are more willing to step up and fill the storage tanks,” the trader said.