Europe vacuum gasoil strengthens on strong US demand

11 October 2010 17:20  [Source: ICIS news]

LONDON (ICIS)--The European vacuum gasoil (VGO) market has emerged from a two-month period of inactivity as a result of strong demand from the US, market sources said on Monday.

Activity in the VGO market was also bolstered by an end to the contango situation, which had encouraged sellers to retain stocks until prices were more favourable.

Premiums for high-sulphur VGO had climbed from $0.50/bbl on 5 October to $1.50/bbl on Monday, while those for low-sulphur VGO increased from $3.50/bbl to $4/bbl during the same period. The price hikes resulted in a backwardation of around $2/bbl.

The latest VGO price ranges were pegged at $584-594/tonne FOB (free on board) NWE (northwest Europe) for high-sulphur product and $602-612/tonne FOB NWE for low-sulphur product, compared with the ranges assessed on 1 October of $572-582/tonne and $593-603/tonne, respectively.

Robust demand from the US was thought to have resulted from a number of upgrading units returning to operation following a month-long period of maintenance. The VGO market in Europe was now short due to this increase in buying interest.

One market participant, however, disagreed with this picture, saying that there was only a marginal increase in demand in Europe and that the market remained balanced.

The source went on to say that there was no significant change in demand from the US.

Players said it was not possible to predict how long the upturn would last.

VGO is used as a feedstock for the production of gasoline and base oil.

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By: Jo Pitches
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