The U.S. base oil market was eerily quiet this week until ConocoPhillips broke the spell, announcing a 30 cent per gallon price cut on all paraffinic grades effective Friday.
Base oils buyers have become increasingly outspoken in their quest for attaining discounted prices. However, there were no fresh indications that producers would respond, despite the action taken by Flint Hills Resources two weeks ago, until ConocoPhillips announcement yesterday.
ConocoPhillips 30 cent/gal cut applies to all its API Group II base oils from the Excel Paralubes plant, whose output ConocoPhillips shares with Flint Hills. The price reduction also applies to the Group II+ and Group III base oils that ConocoPhillips markets under agreement with South Korean producer S-Oil.
On Oct 7, Flint Hills Resources surprised many paraffinic players by issuing a 20 cent/gal decrease for all its Group II paraffinic base stocks.
For now, posted and spot prices for all paraffinic grades remain firm amid still-tight supply availability, other sellers said. Although demand is slowing heading into the end of the year, there is still steady business. This along with squelched inventories is keeping the market in a balanced-to-tight position, these suppliers reiterated.
Several production sites that were hindered due to hurricane damage are still struggling with restarts. The impacted producers, including Motiva and ExxonMobil, are striving to satisfy customers requirements, while improving operations and beefing up stock levels.
There are also a few force majeure and sales allocations programs still active, as well as planned turnarounds underway or about to occur, which is placing additional pressure on the overall supply situation, some sellers pointed out.
Meanwhile, given the prevailing downward price pressure stemming from the buy side, it was hinted that a few paraffinic producers may soon reinstate temporary voluntary allowances (TVAs) to direct buyers. It was not certain all producers will agree to TVAs, but sources said that if they are put into action, it would be an effort to help relieve some of the pain attached to the existing high prices.
In related news, OPEC plans to announce a production cut at an emergency meeting on Friday, in order to stem a three-month slide in crude prices, according to the oil cartel’s president Chakib Khelil, as reported by Algerian news media. Khelil is also the oil minister of Algeria. According to Khelil, the global oil market is oversupplied by about 2 million barrels a day.
There is speculation by some analysts that investors expect to see the Organization of Petroleum Exporting Countries cut production between 1 and 2.5 million barrels per day, but the planned cut may not be enough to impact oil markets.
One Florida-based energy analyst said that in the past three months crude demand has dropped by over 1 million barrels per day. The analyst went on to say that even if OPEC does cut production, there is no guarantee its member nations will comply with the quota.
In the meantime, crude oil values have tumbled more than 50 percent since reaching a record $147.27 a barrel in July.
At the close of the Tuesday, Oct. 21, NYMEX session, light sweet crude futures settled at $70.89 per barrel, down $7.74 from the week earlier close at $78.63/bbl.
Carolyn L. Green, based in Houston, can be reached directly at carolynlgreen@gmail.com.
PLEASE NOTE: ConocoPhillips, marketer of S-Oil, and SK have both confirmed that their 2 cSt and 3 cSt base oils have viscosity indices below 120, the minimum to qualify as API Group III products. Those base oils have been reclassified in the base oil chart below as Group II+ oils.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.