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US fuel oil demand sinks, setting record lows, according to EIA data

By John-Laurent Tronche

Introduction: US residual fuel oil demand recently hit a record-low 154,000 b/d less than a decade after demand was closer to 1 million b/d, according to US government statistics. The precipitous decline is a direct result of refineries looking to maximize production of high-value products such as middle distillates and gasoline and minimize production of low-value products like fuel oil, which typically sells for less than the crude oil used to make it. Rising natural gas production also has lead to a greater reliance on that product for power generation at the expense of fuel oil.

However, there appears to be a floor to how far demand will fall. Demand for natural gas in the US Northeast has outpaced the building of pipelines to move the product, leading to gas curtailments, volatile natural gas prices and utilities taking a second look at fuel oil. New York Harbor fuel oil traded within a $2.50/MMBtu range during the first quarter compared with a nearly $125/MMBtu range for regional natural gas prices (see story and chart). This feature pulls from some of the latest news stories about fuel oil in the US.

April 29, 2014 - US residual fuel oil demand averaged 207,000 b/d in February, the second-lowest demand figure on record despite repeated cold snaps across the Northeast that increased demand for the product, according to Energy Information Administration data published April 29.

The data are monthly figures released with a two-month lag and separate from the EIA's weekly petroleum status report that is typically released on Wednesdays.

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US Marketscan provides you with a daily market overview of the major refined products in the United States delivered via e-mail. It carries spot prices for all key products traded in the US market. Gasoline, heating oil, jet fuel, residual fuel and naphtha prices are listed for the Atlantic Coast, Gulf Coast, Group 3, Chicago and West Coast markets. Each issue also includes insightful market commentary.

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The February average marked a 62,000 b/d decline from the January average. The February figure was also down by 97,000 b/d year on year.

The first quarter of the year was marked by several cold weather events that increased demand for fuel oil for use in US Northeast power generation, a sector whose demand for fuel oil has waned since natural gas production has become the preferred source for generation.

Even so, nationwide fuel oil demand in February was the second-lowest figure in statistics available from EIA that date back to 1936. The record-low demand of 196,000 b/d was set in December 2012, data shows.

The reason for the recent decline was a nadir for demand in the West Coast region, which saw demand fall to 78,000 b/d, a new record low. West Coast demand averaged 139,000 b/d over the past five years.

US fuel oil imports rose by more than 80% to 221,000 b/d while exports also jumped to 446,000 b/d, a nine-month high. Exports have been higher than imports for 34 consecutive months.

Fuel oil production fell to 428,000 b/d compared with the five-year average of 537,000 b/d.

Fuel oil days of supply was 177 days, data shows.

Next story: An 'artifact from the past,' fuel oil has fallen out of favor in the US

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