The US residual fuel oil hi-lo, the spread between Atlantic Coast 1.0%S and Gulf Coast 3.0%S, contracted 35 cents on Tuesday, clawing back the increase of Monday, as weak global demand continues to keep US fuel oil values relatively weak.
The recent volatility suggests continued weak demand and little arbitrage opportunity to Asia have capped value for the US fuel market, with price surges selling off as quickly as they arrive.
In the month of June thus far, the average daily change in the July hi-lo swap was about -1%, with a standard deviation of 4.11%. Since last Tuesday, there have been five moves beyond one standard deviation.
The July hi-lo swap has consistently been above $5/b since May 30, peaking at $5.20/b in early June. Prior to then, this figure had not been reached since May 13 and March 1.
The July hi-lo was heard talked 25 cents narrower $4.50/b on Wednesday.
The US HSFO crack spread widened 16 cents to minus $13.71/b and the LSFO crack spread widened 47 cents to minus $9.36/b.
With little support from crude due to the widening crack spreads, the US hi-lo dropped 35 cents to $4.35/b.
Widening crack spreads in the high sulfur fuel oil realm also signal global weakness in fuel oil as the arbitrage closes off to Asia from Europe and the US. Only three stems have been reported fixed to load in June to move fuel oil to Asia, and none yet in July.
Domestic HSFO demand in the US also remains too weak to support values without the help of Asia. Houston retail RMG 380 was assessed at $592/mt, or $93.23/b, 7 cents under bulk RMG 380, which was assessed at $93.31/b.
