From Platts

Houston (Platts)

An active hurricane season this summer in the Caribbean region has put strain on fuel oil storage and interrupted normal flows, which could result in an influx of supply headed to the US Gulf Coast, sources said.

The landfalls of hurricanes Irma and Maria over the past two weeks damaged several terminals in the Caribbean. The terminals receive fuel oil from the US Atlantic Coast, Europe, and Latin America, and frequently exports to Panama, the US Gulf Coast, and Asia.

US fuel oil traders said normal exports of fuel oil out of the Atlantic Coast to Caribbean terminals have hit snags this week in the wake of the landfall of Hurricane Maria. With operations at terminals at St. Eustatius and St. Croix suspended since early September, it has left traders looking to find new homes for fuel. One USAC trader said a cargo of HSFO that normally exports to the Caribbean ended up going to Panama.

Two US fuel oil traders said any diversion of fuel oil out of the Caribbean could result in fuel oil going to Houston or New Orleans, adding additional fuel to what has already been described as a growing supply glut in the USGC.

A US fuel oil broker said while refineries are mostly back online following Hurricane Harvey, some cokers at refineries are still down or not operating at full capacity. US Energy Information Administration data showed Wednesday that refinery yield of fuel oil in the USGC for the week ended Friday was 3.8%, the highest in the region since January 2014.

USGC fuel oil prices spiked in the wake of Hurricane Harvey as suppliers sought limited fuel to fulfill contracts. The physical USGC HSFO market was assessed Thursday at a premium of $1.80/b to the October USGC HSFO swap, an indication of extreme market backwardation. Several sources said the high premiums attracted offering interest of spot cargoes to Houston. Four sources said a cargo from Venezuela containing 500,000 barrels of HSFO was set to arrive in Houston at the end of September.

The broker said that if significant quantities of fuel oil are sold into Houston instead of the Caribbean, the swap markets could flip to a contango this month. On Tuesday, USGC HSFO was assessed at a discount to the front-month swap for the first time since August 18, S&P Global Platts data showed.

–Patrick Burns, [email protected]

–Edited by Derek Sands, [email protected]

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