To many players, it appeared that most consumers were attempting to run down inventories late last year, while anticipating that prices might drop lower. Indeed there was a round of posted price decreases implemented in December, but now sources believe that postings as well as spot offers may have bottomed out. In fact, many participants confirm that prices have stabilized – if not firmed – as the market heads into what is typically its busy buying season.

Meanwhile, several cargoes recently arrived into the U.S. and were quickly sold, leaving no surplus for spot activity, said sources. These imported quantities of Group II/II+ were quickly absorbed at expected domestic market values and not at discounted levels, the sources noted.

Conversely, export opportunities remain at unappealing price levels for potential sellers. A few sources indicated that offshore buyers continue to expect discounted offers compared to U.S. domestic price points. In some cases, it was suggested that potential transactions could be completed at 30 cents to 60 cents below current domestic activity. Hence there has been virtually no export spot trade concluded in recent weeks, say sources.

Prevailing downward price pressure is a result of still-depressed market conditions in other major regions including Europe and Asia, traders indicated. However, sources in these regions expected to see price improvement in the coming weeks.

As mentioned in recent weeks, the base oil marketplace is preparing for several turnarounds this quarter and next at paraffinic manufacturing locations, with one downtime thought to have already commenced at a Texas Group II site. Another large shutdown at a Louisiana Group II facility is expected to begin within the next few weeks and to last upwards of four weeks. During the same time, another Louisiana Group I/II plant will be taken offline for just over two weeks for maintenance.

There are rumblings that a few other Group I and II refineries are planning shutdowns as well, but details are not forthcoming at this time. At least two naphthenic facilities are scheduled for maintenance programs – one to commence in March and the other in April.

Looking upstream, operating costs are once again somewhat worrisome for producers. Vacuum gas oil values have bounced back higher after moderating late last year. On Monday, industry players pegged VGO differentials at $23 to $24/barrel over WTI for low sulfur, while high sulfur VGO stood at circa $20 to $21.50/bbl over WTI.

An even greater concern for base oils producers is the potential lack of merchant VGO this year and subsequent stiffer feedstock costs. There are strong indications that a few U.S refineries (which include VGO production) could be shut down this year or next due to poor economics. A recent announcement revealed that the Hovensa refinery will be shut down in the next few weeks. Hovensa is located in St. Croix, U.S. Virgin Islands, and is a large VGO producer. The refinery is a joint venture between Hess and Venezuela’s PDVSA.

At the close of the Tuesday, Jan. 24, CME/Nymex session, front month light sweet crude oil futures ended the day at $98.95 per barrel, down $1.76/bbl from last weeks settlement at $100.71.

Brent crude was trading at $110.24/bbl at the end of the day yesterday, down $1.33/bbl from its week-ago level at $111.57. LLS (Light Louisiana Sweet) crude was trading at a premium of about $11/bbl to WTI on Tuesday.

Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.