It was another interesting week in the U.S. base oil arena. Hurricane Gustavs journey through the Gulf of Mexico had most producers preparing for the worst, and breathing easier when the storm passed.
Gustav, a Category 3 hurricane upon nearing landfall on Monday, stirred up significant concern for manufacturing facilities lined up along the Texas and Louisiana coasts. The storm barreled in near Houma, La., just southwest of New Orleans. Once on land, Gustav weakened and headed west-northwest.
It seemed clear by Tuesday that no major refiners had sustained much damage; most of the facilities had taken precautionary operational measures in advance of the storm. These plants are now in start-up mode, including the ExxonMobil refineries in Baton Rouge, La., and Beaumont, Texas, as well as the Port Arthur, Texas, Motiva refinery. It could take the better part of this week for these plants to be back to normal operations, pending the return of sufficient manpower and reliable electrical power, sources said.
Meanwhile, on Tuesday crude oil futures experienced a $13 per barrel swing during intra-day trade from as low as $105/bbl to as high as $118, but values lost momentum shortly into the session. The decline was partly due to the less-than-expected impact of Hurricane Gustav on the Gulf Coast region and a stronger U.S. dollar, energy experts said.
Lower oil prices are a huge welcome to the base oil sector. Most buyers now expect that producers will soon start the process of lowering postings. Producers, however, remain reluctant to offer discounts just yet, as market conditions remain supportive of current prices. Base oil suppliers also noted that the oil market is still too volatile to make any decisions regarding pricing.
Although there have been no recent base oil posted price increases, the finished lubricant segment is facing a round of substantial upward adjustments of about 18 percent on average. These price revisions vary depending on downstream use and are effective over this week and next. This is the third series of finished lubricant price hikes this year, and it generally aligns this segment with the upstream base oil market and its increases, consumers acknowledged. Additionally, Chevron stepped out last week with a proposed finished lube price hike of 11 percent for October implementation. Sources said that no other majors had followed this initiative.
At the close of the Tuesday, Sept. 2, NYMEX session, front month light sweet crude futures settled at $109.71 per barrel, a drop of $6.56/bbl from the week earlier close at $116.27.
Carolyn L. Green, based in Houston, can be reached directly at carolynlgreen@gmail.com.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.