US VGO premiums to WTI crude fall as demand weakens

25 July 2013 17:51  [Source: ICIS news]

HOUSTON (ICIS)--US premiums of vacuum gas oil (VGO) dropped as demand for the product weakened, market sources said Thursday.

Low-sulphur (0.5% maximum) VGO premiums to West Texas Intermediate (WTI) crude futures trading on the NYMEX were assessed at $17.50/gal, down from $20.00/gal on Tuesday.

High-sulphur (2% maximum) VGO was assessed at $16.25/gal over WTI, down from $17.50/gal.

In Europe, VGO premiums were also assessed lower on Thursday, partly as a result of a fall in sales to the key US export market.

The US premiums remain well below the $30/bbl mark hit earlier this year but have still had an impact on downstream markets, such as base oils, since VGO is used as a key feedstock indicator for the base oils market.

This week, Chevron confirmed higher Group II base oils posted prices on the west coast, mainly on rising crude oil costs and recent upward pressure on VGO premiums.

While other producers had mixed reactions to the price increase, they did say the rising cost of crude oil and VGO were bringing base oil margins to uncomfortable levels.

However, the drop in VGO premiums and recent downward movement in WTI crude futures may keep other base oil producers from increasing prices.

Additional reporting by Judith Taylor

($1 = €0.76)

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By: Anna Matherne

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