US Gulf Coast high sulfur fuel oil began strengthening after a spate of recent selling as players look forward to a shift in supply/demand balances toward tightness in the near term, trading sources said Tuesday.
"Availability will be tight in the near future and the return of cokers will be the main reason," a Gulf Coast trader said.
With cokers at most Gulf Coast refineries returned from recent turnarounds, supply is beginning to tighten noticeably in the region, a trend which should continue through April.
"There isn't that much fuel oil coming out of VTBs" which makes its way into the market, a second Gulf Coast trader said, instead going directly into cokers as feedstock.
USGC 3% sulfur rose 76 cents to $93.76/b, pushing cash up to a 22-cent discount to the 3%S strip.
While production was high through March, much of that was shipped off to Asia, keeping the region generally balanced, according to market sources. And with cokers back in service, supply seems likely to tighten.
At the same time, demand for high density fuel oil is on the rise in the near term as Mexican utility buying for 3%S is set to start early, sources said.
"This year Mexico started buying early," and will likely take 500,000 to 750,000 barrels a month of 3%S out of the Gulf Coast, the first trader said.
Asian demand is expected to remain robust as well, with fuel oil storage at its lowest in several months.
That could push the Gulf Coast fuel oil market into deeper backwardation by May, the first trader said. April/May backwardation has recently tightened to 20 cents/b.
