Houston marine gasoil prices have maintained a discount to Nymex heating oil delivered prices since September 2015, undermining MGO profit margins and impacting sales volume dynamics on the US Gulf coast.
Houston marine gasoil (MGO) ex-wharf prices were 99.5pc of the price of Nymex heating oil delivered futures on average in February 2016. From February 2013 – February 2015, MGO was assessed an average 104.8pc of the Nymex heating oil price, but the premium began to decline as crude oil prices dropped, eventually assuming a seven percent discount to heating oil in September 2015. Nymex heating oil front month futures are commonly used by bunker suppliers on the US Gulf coast as a price indexing tool for MGO.
The shift in the MGO ex-wharf - Nymex delivered heating oil premia could be attributed to the effect of barge fees, ample diesel availabilities and weak bunker demand. Sustained weak crude oil prices, supplier competition and a four-year record for Gulf distillate stocks have dug into supplier's MGO profit margins.
Suppliers have looked to their Jones Act bunker barges as a source of margins. Suppliers offering barging make bigger delivery profits on a per ton basis for smaller lots. Suppliers post their bunker barges, which vary by company. The Gulf coast minimum bunker barge voyage rate ranges from $5,000-19,665. Once the minimum rate is met, per ton rates vary from $5.50-18.20. For example, a supplier has a posted minimum barge rate at $8,800 and per ton rate at $8.50/t and sells five MGO lots of 200t, each to five customers. The supplier would generate $44,000 in barging for moving a total of 1,000t. By comparison, if the supplier sells a single 1,000t lot, they will generate $8,800 in barging. Taking into consideration the bigger barge revenue on multiple smaller lots, and their daily freight cost for time-chartering a barge, suppliers have been offering smaller MGO ex-wharf lots at below their Nymex delivered heating oil resupply costs. This trend is expected to stay as long as oil prices remain weak and product supply availability ample.
