Market Speaks: US Residual Fuel Oil Demand Firms Up Says EIA

4 Feb 2022 , 12:43 PM

The demand for residual fuel oil in the United States increased in late 2021, yet domestic production remains low, a latest update from the Energy Information Administration or EIA noted. In November 2021, there was more consumption of residual fuel oil (RFO) in the United States, measured as product supplied, than for any month since January 2017. Consumption then set a series of weekly five-year (2016-2020) highs in December, according to our Weekly Petroleum Status Report (WPSR). RFO is primarily consumed as vessel bunker fuel in the maritime shipping sector. The increase in RFO consumption comes with record increases in maritime shipping volumes and rising high-sulfur fuel oil (HSFO) prices in Singapore. RFO inventories fell to five-year lows during this period of strong consumption. In addition to increased demand, low inventories also reflect less refinery production of RFO on a sustained basis as a result of longer-term market changes.

Until the end of 2019, US refinery production of RFO exceeded 300,000 barrels per day (b/d). In December 2019, production fell to 242,000 b/d and has not risen above 300,000 b/d since then, according to WPSR. Beginning on January 1, 2020, the International Maritime Organization’s (IMO) tighter regulations on maritime fuel sulfur specifications went into effect. Fuel producers and shippers anticipated that the new regulations would disrupt the marine shipping industry over the course of 2020. Expecting a related decrease in HSFO demand in 2020, many US refiners began reducing their yield of HSFO in 2019 or earlier, or RFO more broadly, to avoid overproduction prior to the new regulation taking effect. US refinery runs and RFO production remained below pre-pandemic rates for most of 2021, which when combined with near-normal demand levels, contributed to below-average U.S. RFO inventories throughout 2021.

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