US vacuum gas oil trades at smallest premium to WTI since August

28 October 2011 18:35  [Source: ICIS news]

HOUSTON (ICIS)--US Gulf vacuum gas oil, the main gasoline feedstock, slipped to its lowest premium over crude oil in nearly three months on weak profit margins for gasoline production, market sources said on Friday.

Profit margins for gasoline declined to $20.22/bbl with the prices settling at $2.6998/gal on 25 October, the lowest margin since 28 February. Vacuum gas oil is the feedstock for catalytic gas production, which makes up the highest percentage of the motor gasoline blend pool.

Vacuum gas oil with maximum sulphur of 0.5% was $124.96-126.46/bbl on 27 October, assesed at $31.00-32.50/bbl higher than West Texas Intermediate (WTI) crude oil. The vacuum gas oil premium was $40/bbl over WTI crude on 14 October. Gasoline was down 12.49 cents/gal on 25 October from 14 October.

When refiners do not profit as much from gasoline, they are less motivated to purchase spot vacuum gas oil as a means to increase gasoline output, spot traders said.

Gasoline prices have fallen more rapidly than crude oil because of unusually low seasonal demand, traders said. For the week of 21 October, gasoline demand was 8.501m bbl/day, according to the US Energy Information Administration (EIA). Demand was at 9.013m bbl/day, 2.7% higher, for the same week in 2010.

Unusually low demand for gasoline has caused prices on the futures market and spot markets to slip. For the week of 21 October, gasoline futures fell 5% and WTI crude futures gained 0.7%.

By: Sheena Martin
+1 713 525 2653

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