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Lower prices set to boost US fuel exports

6 Oct 2017, 7.40 pm GMT

Lower prices set to boost US fuel exports

Houston, 6 October (Argus) — Lower prices on the US Gulf coast and poor domestic arbitrages are allowing US sellers to step up exports and reclaim the Latin American market lost to European suppliers following Hurricane Harvey.

Earlier this week saw Gulf coast gasoline prices fall by as much as 50¢/USG from their Harvey-induced peak in late August. Tropical storm Nate is threatening production along the Louisiana Gulf coast through the weekend, but its bullish impact on gasoline prices appeared fleeting as of today.

US Gulf coast 11.5 RVP CBOB on the Colonial pipeline fell to $1.53/USG on 2 October, the lowest level since 22 August. This price peaked at $2.03/USG on 31 August, a day before Hurricane Harvey made landfall in Texas.

A similar decline marked the US Gulf coast diesel market, with Colonial pipeline prices hitting $1.71/USG earlier this week, a near five-week low.

Domestic arbitrage opportunities that opened up as a result of Harvey have since diminished. The arbitrage to ship Gulf coast gasoline to New York Harbor on the Colonial shut this week as the US northeast switched to less stringent seasonal gasoline specifications. Stable imports into the area have also cut into demand for Gulf coast supplies.

The domestic diesel arbitrage also shut this week, as buying interest in the northeast failed to pick up at the beginning of fall amid uncertain winter demand. Lower Gulf coast prices and limited domestic demand leave the door wide open for fresh exports to Brazil, the Caribbean, and Europe.

Export prices for diesel were pegged at around +1.75¢/USG above pipeline levels for low-cetane cargoes meeting Mexico's specifications, and +2.3¢/USG above pipeline for the EN590 grade meeting European standards. These prices mark an increase of around 0.2¢/USG from late September markets, according to market sources.

On the demand side, Europe's appetite for diesel is set to grow as Shell shut 12 units at its 420,000 b/d Pernis refinery in the Netherlands for major maintenance starting yesterday and expected to last through mid-November. Refinery maintenance in Russia — a major supplier to northwest Europe — will further boost transatlantic demand for US Gulf coast diesel.

The arbitrage to move gasoline and diesel from Europe to Latin America have all but dried up this week. Several Europe-Latin America diesel and gasoline fixtures booked earlier this week had subsequently failed. Sellers in Europe and the Mediterranean had dominated the Brazilian market earlier last month.

In Mexico, the country's 330,000 b/d Salina Cruz refinery has postponed restart till late October following damage from earthquakes and storms.

Mexico drew two export cargo bookings from the US Gulf coast in the past week and one from the US west coast, fixture reports show.

Fuel demand in the Caribbean has remained strong as well post hurricanes. A few cargoes have been booked to Puerto Rico under a Jones Act waiver, which is set to expire on 8 October.

US exports were already on the way up in late September. The Energy Information Administration (EIA) estimates the country exported 640,000 b/d of gasoline during the week ended 29 September, up by 16pc from the week prior. Distillate exports also grew by 25pc to 1.37mn b/d.

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