The word on the street this week echoes what the U.S. base oil arena has experienced for much of August. Supply remains a concern amid still-healthy demand, and price ideas are holding steady for the paraffinic side while naphthenic values are firming.
Sources acknowledge that the paraffinic market has slowed the better part of August, but orders are expected to pick up shortly after the Labor Day weekend has passed. The naphthenic side, however, has experienced robust demand for much of the summer, and sellers say there is no slowdown in sight for the heavier vis pale oils.
In fact, naphthenic producers agree that consumers requirements for grades 750 through 2000 have been so strong for months that there is no surplus available for establishing new business. A few suppliers said that they are even having trouble keeping up with scheduled business and may be forced to delay some deliveries a few days or as much as two weeks.
Demand for the light-end pale oils has improved as well. The transformer oil segment, which had been fairly quiet earlier in the year, has shown refreshed buying interest recently, sellers noted. They added that other consumption sectors are also displaying growth, which is helping keep the overall line-up of naphthenics tight.
Consumers are likely being hit with firmer pale oil prices heading into September due to market fundamentals, a few sellers indicated. In many cases, temporary voluntary allowances (TVAs) have already been removed. Certain accounts will see upward price adjustments to reflect the difficult supply/demand situation, producers say.
Adding insult to injury, Calumets Princeton, La., refinery was shut down last week to address some production issues. After being offline for five days, the 6,900 barrel per day naphthenic facility resumed operation on Tuesday, and the company expects improved yields going forward.
Other domestic naphthenic sites as well as the PDVSA-run Netherlands Antilles plant are understood to be operating at expected levels. The same is heard for most of the paraffinic facilities.
Looking upstream, crude oil prices continue to toy with energy traders and investors. After falling from its highs of $82-plus per barrel in early August to a low of around $71.50/bbl about a week ago, futures did rebound. Prices reached over the $75/bbl mark last Friday, but those levels could not be sustained early this week and began to inch lower once again. It is still uncertain which direction prices will take in the coming month, energy experts lament.
It is also worth mentioning that there is an extensive crude refinery turnaround season coming up for quarter four and into quarter one. Sources said that this approaching heavier-than-normal downtime period could ultimately impact the availability of the feedstock vacuum gas oil. VGO is a key component in the processing and costing of base oils.
At the close of the Tuesday, Aug. 31, NYMEX session, light sweet crude futures settled the day at $71.92 per barrel, up a mere 29 cents compared to the $71.63/bbl close reported one week earlier.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.