Vacuum gas oil premiums rise on stronger refined product prices

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.  

On 1 April, 70/30 was $132.14, a $24.20/bbl premium to WTI crude oil ($107.94/bbl), and low-sulphur VGO was $129.19/bbl, or $21.25/bbl over WTI crude. NYMEX crude oil was at $107.94/bbl.

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.