The spread between low- and high-sulfur VGO barges in the US Gulf Coast cash market stood Wednesday at its widest point in more than six months as cargoes of the more sour product from Northwest Europe, Scandinavia and the Baltic states head for US shores.
High-sulfur VGO at maximum 2% sulfur was heard traded late Tuesday at the equivalent of cash February WTI plus $4.50/b, compared with a trade of low-sulfur VGO at maximum 0.5% sulfur at the equivalent of $7.35/b over crude.
The spread of $2.85 is the widest since low-sulfur VGO was also $2.85 over the sour product July 8. It points to the balance of product recently shipped from Europe tilting toward higher-sulfur VGO. About 10 VGO cargoes have been dispatched to the Gulf and West Coast markets in recent weeks from European ports, and market sources said one cargo of VGO from Colombia also is expected in the Gulf Coast early next month.
"There is no doubt at the moment that there are too many cargoes either in the USG or on the way there for the market to absorb," a European feedstocks trader said Wednesday.
High-sulfur VGO is fed into a refinery hydrocracker to make gasoline and diesel, while low-sulfur VGO goes into a fluid catalytic cracker to produce naphtha for reforming into gasoline, according to energy consultant RBN Energy.
Early Wednesday, high-sulfur VGO was heard traded at March cash WTI plus $3/b, the equivalent of February cash WTI plus $4.10/b and suggesting further weakness in sour product. No trades were heard in low-sulfur VGO, implying that the $2.85 spread is unchanged.
The Wednesday trade was for part of a VGO cargo aboard the Mare Pacific and chartered by Glencore, a US feedstocks source and a second Europe feedstocks source said. That ship was north of Havana, Cuba, late Wednesday morning and bound for the Port of South Louisiana at Lapace, Louisiana, according to Platts cFlow trade software. A Glencore trader did not immediately return a message left Wednesday morning about the Mare Pacific, which sailed from Estonia last month.
The VGO aboard the Mare Pacific had been offered at the equivalent of February crude plus $4.85/b earlier this week.
Rising Gulf Coast cracks in gasoline and diesel were not enough to lift high-sulfur VGO. The crack for a barrel of 87-unleaded against a barrel of region-dominant Louisiana Light Sweet crude rose $1.67/b to $11.60/b Tuesday. The diesel crack rose 12 points to $6.79/b. NYMEX futures in both products were weaker Wednesday morning, however.
VGO markets have lost support with VGO-consuming units offline at two of the nation's 10 largest refineries, both in Texas. The ultracracker at the 451,000 b/d Marathon Galveston Bay refinery is expected to be unavailable until March 1, and the VGO hydrotreater at the 340,000 b/d Shell-operated refinery at Deer Park, Texas, will be down until mid-February.
Market sentiment points toward further falls for high-sulfur VGO.
"I think our differentials can come off another 50 cents," a third European feedstocks source said. "To go from WTI plus $7 to plus $3 in one month? That is a huge swing."
High-sulfur VGO was assessed at $7.10 over January cash WTI last December 22.
