The U.S. base oil market generally returned to demand-supply balance during the second half of 2006, but the recovery did not proceed evenly across the viscosity spectrum, as lighter paraffinic grades became flush while heavy stocks remained tight. Market sources attribute the disjointed nature of the recovery to a change in the capacity profile and basic mechanics of refining.
The markets rebound from an unprecedented series of supply disruptions was obviously aided by the massive expansion at Motivas Port Arthur, Texas, plant earlier in the year. The facility christened a third production train in March, expanding its capacity by 15,000 b/d. Sources noted, though, that the new train makes light- and medium-viscosity oils.
The Port Arthur expansion clearly made a huge impact in helping the recovery, a buyer said. Thats a lot of new barrels. But it didnt do anything for the heavy end of the market.
Others said that base oil plants generally can make lighter grades of base oil faster than heavier grades and that many were probably skewing production toward the light end of their portfolio as they strove to rebuild depleted inventories.
I think its just natural during a time like that that you address the parts of your business that are easiest to address first, one marketer said.
Sources predicted that the disparity in balances for different viscosity grades will tend to even out as refiners react to pricing fluctuations. Prices for lighter grades fell in relation to heavies during the second half of the year. Buyers and sellers agreed that this will probably spur producers to maximize output of heavy stocks, thereby improving availability in that end of the market.
Posted price for paraffinic base oils in the United States were unchanged the past week. The price of crude oil on the New York Mercantile Exchange closed yesterday at $60.76 per barrel, according to Bloomberg. That was 34 cents less than a week earlier.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.