The U.S. base oil market appears to be in a holding pattern, with little change noted in buying or supply. Some sources said heavy grades and bright stock are increasingly hard to find, while other sources speculated that a number of large refineries are running at 75 to 85 percent of capacity.
Ahead of the most recent round of paraffinic price hikes in mid-July, producers noticed an uptick in customer orders. Increased sales were most likely due to buyers suspicions that prices were going to move higher, sources suggested. And indeed they did. Postings on average rose 25 cents to 35 cents per gallon, depending on grade. In some cases, price adjustments were lower and in other cases they were steeper.
But demand has fallen quiet once again. Some of the lack of activity can be blamed on the fact that Europe is in the midst of its summer holiday season. In the United States, it is surmised that many global consumers have built up their stock positions to satisfy their businesses for the near term.
Meanwhile, traders claim that finding large slugs of heavier grades such as SN 500 to 700 and bright stock has become difficult in recent weeks. Some of the same spot buyers have suggested that light viscosity neutrals are more readily available, and suppliers are eager to offer steep discounts to buyers ready to take surplus volumes of SN 90 to 150.
Not all industry participants agreed with this unbalanced-supply view; they said that there are limited spot volumes of any grade, whether it is light, mid or heavy viscosity. A few buyers admitted that they have found there are no real bargains to be had, as most producers are well balanced. They added that suppliers are not willing to negotiate lower prices and are standing firm on pre-established volume discounts.
Whether the majority of base oil production facilities are operated at optimum rates or at reduced rates is debatable. Some players speculated that a number of larger sites are running in an estimated range of 75 percent to 85 percent of capacity, while smaller plants are cranking out product at top levels. Although producers will not comment on output performance, they do contend that supply/demand matters are balanced and that customer orders are meeting mid-summer expectations.
What supply partners do agree with is that overall sales for base stocks, regardless of end use application, have yet to reach volumes equal to previous years. But both the buy and sell camps are upbeat, believing that market conditions will recover once the economy makes a strong comeback, which could come in the first half of 2010.
At the close of the Tuesday, July 28, NYMEX session, light sweet crude futures ended the day at $67.23 per barrel, a gain of $2.51 compared to the week earlier settlement at $64.72/bbl.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.