Off-spec bunker fuel in Houston leads to tight avails, arb opportunities

Specification issues with delivered bunker fuel and fuel oil in the US Gulf Coast ports in recent months have led to tighter availability in the region, opening the opportunity to work arbitrage fuel oil cargoes from Europe and the Middle East.

A number of vessels have been impacted the spec issues, reporting purification problems and damage to main and auxiliary engines from bunker fuel supplied from early March to late April in Houston and nearby ports including Galveston, Beaumont and Bolivar Roads, according to sources.

One bunker trader said more than 100 ships alone in the Texas area have been affected by problems caused by off-spec fuel oil.

A bulletin issued by the Fuel Oil Bunkering Analysis and Advisory Service, part of Lloyd’s Register, in late April has advised caution for any vessels bunkering at Galveston and nearby until an investigation into quality is completed.

The fuels in question can meet the minimum ISO 8217 specifications under standard testing, which is causing anxiety and a very cautious attitude among shipping companies.

Gas chromatography-mass spectrometry test are able identify some questionable materials, but sources said that the test is expensive and time-consuming, which can be problematic when deliveries are needed in a timely manner.

“[The companies] don’t have the full picture yet. It’s a bit scary,” a shipper said.

As a result of this, on-spec RMG 380 CST availability issues have been reported in Houston, with local suppliers failing to keep up with demand.

European fuel oil traders expect that should this off-spec issue persist cargoes of high viscosity Russian M100 fuel oil could be shipped from the Baltic region to the Caribbean for blending.

The FOB Rotterdam 3.5% fuel oil barge assessment over the past 10 trading days has been on average at a discount of 49 cents/b to USGC HSFO. Usually, M100 fuel oil trades at a discount of around $7/mt to the FOB Rotterdam 3.5% barge assessment.

Additionally, fuel oil and feedstocks cargoes from Europe and the Middle East are open for fixing with options to discharge in the US East Coast and the US Gulf Coast, which could be used to blend down high viscosity product into merchantable RMG 380 CST bunker fuel.

Minerva Helen is booked to take 80,000 mt of fuel oil from Yanbu, Saudi Arabia for discharge on the USGC. She is currently anchored outside Yanbu, according to S&P Global Platts trade flow software cFlow.

This is a surprising move as fuel oil cargoes have begun to be shipped this month from the Mediterranean to Saudi Arabia to support the extra air-conditioning demand during the summer months.

There is also an 80,000 mt fuel oil cargo open from Ruwais in the UAE, a fuel oil cargo, the size is unclear, from Ras Gharib in Egypt and a 55,000 mt VGO cargo from Antwerp all bound for the trans-Atlantic voyage.
Source: Platts