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USGC VGO rises on refiner buying, competes with cheap crude for space

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USGC VGO rises on refiner buying, competes with cheap crude for space

Houston — US Gulf Coast vacuum gasoil prices have risen slightly on the back of two refiner purchases as buyers appeared poised to close a gap that had seen bids and offers $1/b apart for several days, market sources said.

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An influx of cheap crude has taken up capacity in refineries and tamped down demand for VGO in the Gulf Coast, a US refined products trader said. VGO is fed into FCC and hydrocracking units to produce gasoline, diesel, butane and other products.

"If you look at the gasoline cracks now, you'd be crazy not to be running VGO. But refineries just can't make room for the stuff," the trader said. "There are loads of VGO just sitting out on the water because there is nowhere to put them."

With the price of most crudes at or near 6.5-year lows, Gulf Coast refineries are running at 96.9% of operable utilization, a nine-month high, EIA data showed.


Since the beginning of the 2015, the price of Light Louisiana Sweet, the US Gulf Coast's crude value proxy, has dropped 16.6% to an outright value of $45.92/b, compared with a 9.6% price drop for US Gulf Coast 2% sulfur VGO, Platts data showed.

LLS represents 89.6% of 2% sulfur VGO's value, compared with 97% at the beginning of 2015.

"We're in a new world of high margins and low-priced gasoline. In order to take advantage of the abundance of the lighter end crude oil in production here, we're skipping on anything that isn't as convenient," said Carl Larry, a consultant with Frost and Sullivan.

VGO at maximum sulfur 0.5% had been heard at a bid-offer range of cash crude plus $13/b by cash crude plus $14/b for several days, with neither side willing to budge. Feedstock parceled from cargoes from ports in the Baltic Sea and Northwest Europe had remained unsold since late July.

"It was basically one great big game of chicken," the trader said.

But the feedstocks market finally gained momentum Wednesday night with two trades, market sources said. Phillips 66 bought 45,000 barrels of VGO at 0.4% sulfur for Houston delivery at cash October WTI plus $14.35/b. Citgo bought 45,000 barrels of VGO at 0.44% sulfur for Lake Charles, Louisiana, delivery at cash October WTI plus $13.25/b. Lake Charles and Houston freight are considered to be level in the VGO market. The lower-valued deal of the two trades, the Citgo deal, represented an increase of 15.55 cents from Wednesday's assessment when the Wednesday number is converted to an October basis.

The trade at $14.35/b over cash crude trumps any assessment for low-sulfur VGO since July 23.

--Jeffrey Bair, jeffrey.bair@platts.com
--Luciano Battistini, luciano.battistini@platts.com
--Edited by Lisa Miller, lisa.miller@platts.com