US fuel oil prices highest since december despite lukewarm fundamentals

US fuel oil prices Tuesday reached their highest levels since December on a rising crude futures market despite tepid local demand.

Platts assessed USGC 3%S fuel oil at $25.24/b Tuesday, the highest since it was assessed at $26.68/b on December 4, Platts data showed. USAC 1%S fuel oil was assessed at $25.77/b, its highest as well since December 4, when it was assessed at $27.60/b. As seen in December, when crude prices have seen an uptick, fuel oil prices have lagged behind.

The front-month Brent futures-USGC 3%S fuel oil spread Tuesday was $16.67/b, with USGC 3%S fuel oil at a discount to Brent. The crack spread Tuesday is similar to the spread on December 4, which was $16.40/b.

USAC 1%S fuel oil has weakened to crude since December, as winter fuel oil demand for power generation has evaporated with warmer weather in the USAC. On Tuesday, the front-month Brent futures contract-USAC 1%S fuel oil spread was $15.64/b, and was $14.48/b on December 4. Both crack spreads on Tuesday were well below their yearly averages ($14.19/b for USGC 3%S fuel oil, $12.12/b for USAC 1%S fuel oil), an indication of the rising crude market pushing ahead of the US fuel oil market fundamentals.

Sources on both the USAC and USGC said bunker demand has been good, but the contango market structure encourages storage of fuel oil. Bunker fuel demand is not enough to cause a dent in fuel oil supplies, especially with limited export opportunities.

“There is plenty of fuel oil around. The bunker stuff moves easily. Anything else is a dog, and has to be priced [accordingly] to leave,” one USAC broker said.