Prices for US Gulf Coast high sulfur fuel oil have remained weak
for May relative to next-month 3% sulfur fuel oil swaps, as heavy
imports of Russian M100 fuel oil this month and a lack of
incremental
arbitrage opportunities
in the Americas or to Singapore weighed on the spot market. Fixed
prices, however, have stayed fairly strong given the recent
oscillations in front-month NYMEX light sweet crude futures between
$68-$74/barrel in May.
In April, 3%S prices were steeply backwardated relative to
next-month 3%S paper, with physical prices supported by ample HSFO
exports to Singapore. This trend quickly reversed in early May, when
the lofty April prices attracted up to 5 cargoes of Russian M100
straighr run and cracked fuel oil into the USGC/Caribbean. For most
of May, physical prices for USGC 3%S have ranged between $0.30 and
$0.60/barrel below June (next-month) 3%S swaps.
At the same time,
Mexican utility demand
for 3%S has shrank considerably due to cheaper natural gas prices
and adequate hydroelectric capacity, enough to where
Pemex shifted its crude
slate to run more Isthmus and limit domestic fuel oil production,
sources with PMI, Pemex's trading arm, confirmed in late April. When
utility demand for residual fuel oil rises in Mexico, the country
usually takes in several 3% cargoes a month from the USGC.
Demand for bulk HSFO from bunker marketers has also been anemic
for May, adding to the weak sentiment in the USGC HSFO market. The
recent addition of
ExxonMobil to the Houston
retail bunker market has kept prices from rising in line with NYMEX
crude and USGC 3%S, squeezing margins for bunker marketers.
However, the contango between spot 3%S and June 3%S swaps
contracted slightly this week to about $0.10-$0.15/barrel, dipping
below monthly storage costs and potentially eliminating any
incremental spot demand based on favorable contango economics. This
is still fairly weak for the 3%S market in 2006, as spot 3%S traded
above next-month swaps for most of January through April.
Created: May 26, 2006
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