This week welcomed a more-or-less quiet scenario in the U.S. Base oils market. This relatively inactive spell follows a feverous few days ahead of the Thanksgiving holiday that was full of price decreases issued by both paraffinic and naphthenic producers.
For the most part, players have opted for the sidelines, most likely sizing up the price and supply situations while taking a wait-and-see stance. Both camps are seemingly contemplating which side might be the first to make a fresh move.
Producers have issued several series of price cuts starting back in October. These reductions have totaled over $1 per gallon for some neutrals so far and have knocked down postings from their all-time highs reached in the summer months. The latest round of decreases equaled an average 60 cents per gallon for most grades, with only a few exceptions.
Meanwhile, demand continues to dissipate while inventories for both buyers and suppliers are reaching uncomfortably high levels.
December is usually the time for year-end fire sales. Sellers become increasingly aggressive in offering low prices in efforts to reduce their stocks positions, but whether buyers bite is not yet clear.
On the paraffinic side and depending on producer, most grades are available, including bright stock. Heavy neutrals are heard to be the tightest while light vis grades are more abundant. Spot price ideas are hard to pinpoint as pure spot trade is limited.
The naphthenic sector remains more tumultuous according to sources. Prices have been in a free falling state for well over a month against fast rising inventory positions. Overall demand has dropped off considerably, largely due to many end-use segments that have succumbed to the affects of the failing economy. Some players have suggested that pale oil prices are all over the board. In one scenario, sources have said that if any one supplier puts out an offer for any one grade, another seller will quickly undercut the other by 50 cents/gal or more.
Apart from the sloppiness that the end of the year typically brings about in terms of supply and low prices, the base oil market is keeping a very close eye on the current developments in the automotive industry. Whether the big auto makers prevail in the coming months and if more manufacturing plants shut will have a significant impact on many base oil producers come the spring, when seasonal demand is usually in full swing.
For now, some participants expect the rest of December to remain fairly quiet. Prices will likely continue to drift lower as crude values weaken.
At the close of the Tuesday, Dec. 2, NYMEX session, front month light sweet crude futures ended at $46.96 per barrel, a drop of $3.81 from the week earlier settlement at $50.77/bbl.
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.