04 April 2011 19:52 [Source: ICIS news]
HOUSTON (ICIS)--US refineries have found it become more profitable to process vacuum gas oil (VGO) as the price of refined products steadily increase, a broker said on Monday.
A refinery’s fluid catalytic cracker (FCC) processes VGO to produce 70% cat gas – the main component of motor gasoline – and 30% waterborne #2 oil.
Cat gas makes up about half of summer gasoline. Aromatics and other blendstocks makes up the rest.
Waterborne #2 oil is the primary component of heating oil, jet fuel, diesel and bunker fuels.
The price of the 70/30 has increased significantly in recent months because of rising prices for regular gasoline and heating oil.
From 25 March to 1 April, gasoline prices jumped 3.5% to $3.1513/gal from $3.0445/gal. During the same time period, heating oil increased 2.6% to $3.1345/gal from $3.0548/gal.?xml:namespace>
With the 70/30 spread at profit of about $3/bbl above VGO, it is more profitable for refiners to purchase VGO on the spot market to create 70/30 than it was in previous weeks.
This has allowed traders and refiners to increase the spot market price of VGO and still retain a profit from processing it, the broker said.
For the week ended 25 March, refiners were making a profit from production of cat gas and #2 oil of about $5.50/bbl.
VGO prices used to follow those of WTI and Brent crude oil. However, the volatility of refined product prices over the past six years - a result, in part, of the destruction caused by Hurricanes Rita and Katrina - has turned VGO prices away from tracking regular gasoline and heating oil.The volatility has created an “unbearable and unhedgeable” situation, the broker said.
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