Recent gains in US high-sulfur fuel oil (HSFO) prices remain vulnerable to an expected rise in heavy sour crude imports that could boost HSFO supplies following the US takeover of Venezuela's oil trade.
HSFO prices initially fell on 6 January after US president Donald Trump said Venezuela's interim government would transfer 30mn–50mn bl of sanctioned oil to the US following the capture of former Venezuelan president Nicolas Maduro. Losses deepened the next day after US energy secretary Chris Wright said Washington is in talks with Caracas to indefinitely take control of oil sales by state-owned PdV and provide equipment to increase Venezuelan crude output.
But HSFO prices rebounded alongside crude benchmarks as concerns grew over potential supply disruptions from Iran, following escalating US-Iran tensions tied to protests in the country and fears of a possible US military response. As US-Iran tensions eased, crude and HSFO found renewed support from rising trade and tariff risks between the US and EU, linked to Trump's push to take over Greenland for national security reasons.
HSFO prices at New York Harbor (NYH) rose on 22 January to $58.33/bl, up by $8.23/bl from a five-year low of $50.10/bl on 8 January, averaging a daily increase of 91¢/bl over that period. US Gulf coast HSFO prices recovered to $51.83/bl, rising $4.63/bl from a five-year low of $47.35/bl on 7 January for a daily average increase of 46¢/bl through Thursday.
Despite short-term support from geopolitical developments, HSFO prices are expected to face longer-term pressure from rising Venezuelan heavy sour crude flows into the US. Higher Venezuelan crude imports weigh on HSFO prices because refining heavier grades yields more HSFO and also reduces refinery demand for HSFO as a potential feedstock for coke units and hydrocrackers.
Increased US control over Venezuelan crude is also expected to lift domestic HSFO availability, as more barrels would be refined in the US rather than exported to Asia, according to market sources. The US has so far received about 54pc of all Venezuelan crude exports in the first 21 days of January, a 14 percentage point increase from the same period in December, while exports to Asia-Pacific have halted over the same period in January after accounting for 37pc of exports in December, according to ship-tracking firm Vortexa data. As rising Venezuelan crude flows boost HSFO production, prices are expected to steadily fall, according to a fuel oil trader.
HSFO prices could face additional pressure from new EU restrictions on products refined from Russian crude that took effect on 21 January. While the US has banned direct imports of Russian crude and refined products, it can still receive products made from Russian barrels in third countries. This could prompt some cargoes that would normally go to Europe to now deliver Russian-derived products to the US, according to market sources. Trade data from Kpler indicates an early example of this shift, with a Turkish fuel oil cargo that would typically move to Europe now heading to the US. Additional HSFO inflows would further increase domestic supply and add to downward pressure on prices.
