US Gulf Coast vacuum gasoil freight netback to Europe negative again amid low demand
The freight netback to send vacuum gasoil to the US Gulf Coast from the Baltics has turned negative for the first time since December, S&P Global Platts data showed.
In effect, high sulfur VGO supply loading out of the Baltics should be sold at a discount to ICE Brent futures in order to profit from the arbitrage, sources said.
“The arb is slammed shut,” a trader said.
“Instead of February, March ended up being the weak month of Q1 for the US,” another trader said. “You cannot escape cyclical weakness. It can be postponed, but not overcome.”
The US Gulf Coast freight netback is an important benchmark given Europe is the largest VGO-exporting region in the world, while the US Gulf Coast is the largest consumer.
In periods of low local demand in Europe, up to 75% of all supply gets sent to the US Gulf Coast, making Russian oil loading in either the Baltics or the Black Sea very price sensitive to the market in the US Gulf Coast.
FOB Baltics HSVGO freight netbacks from the US Gulf Coast were last pegged at a 76 cents/b discount to May ICE Brent futures, S&P Global Platts data showed.
Likewise, US Gulf Coast barge premiums to front-month NYMEX WTI futures were also at their lowest levels since December.
Prices in the region have fallen from their highs last summer of nearly $15/b, in line with seasonal demand swings and refinery maintenance.