US VGO premiums to WTI crude fall as demand, margins weaken

24 September 2013 22:26  [Source: ICIS news]

HOUSTON (ICIS)--US premiums of vacuum gas oil (VGO) have dropped as demand for the product remains flat, market sources said on Tuesday.

Low-sulphur (0.5% maximum) VGO premiums to West Texas Intermediate (WTI) crude futures trading on the NYMEX were assessed at $10.00/gal, down from $13.00/gal on last week.

High-sulphur (2% maximum) VGO was assessed at $8.50/gal over WTI, down from $11.00/gal.

The US premiums remain well below the $30-plus/bbl mark hit in February.

Furthermore, production rates are slowing on falling demand for gasoline, leading to less need for VGO.

Gasoline refining margins have recently fallen below $10/gal, much lower than the $30/bbl seen earlier this year.

When gasoline is less profitable for refiners, the refiners will cut back on gasoline production and have less need for VGO.

Europe traditionally exports VGO to the US because the product’s primary function is for gasoline production. Europe’s on-road vehicles run on diesel fuel, resulting in less demand for motor gasoline on the continent.

The slack demand from the US markets has also caused a drop in European VGO premiums recently.

VGO is also used as the primary feedstock indicator for the US base oils market.

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By: Anna Matherne

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