Tight supply alongside increased demand largely defines the U.S. base oil arena this week. Sources say day-to-day activity is picking up steam, and orders show remarkable growth over last year.
Despite a shortage of most grades, consumers say that they are receiving most of their prescheduled requirements of both paraffinic and naphthenic base stocks. However, they admit that additional volumes would be welcomed.
This tight supply situation has been building since the latter part of 2010, and now participants anticipate it could be a hand-to-mouth scenario for the better part of this year.
Any surplus of heavy neutrals has been difficult to find for months, and it is becoming increasingly evident that spot activity will be scant for months to come. Offshore interest is strong, with an uptick seen from Mexico as well as a few other Latin American and deep-sea destinations. Unfortunately, sources say, U.S. suppliers cannot entertain that potential trade, given existing market circumstances.
API Group III supply remains exceptionally tight alongside strong demand. Buyers say they are continuing to seek new avenues for supply, but are finding it difficult. A few players noted that the severe shortage of these premium neutrals could be assuaged later this year, once the Bapco-Neste and Shell-Qatar Petroleum Group III plants in the Middle East are up and running. They quickly added that it is too early to know whether these additional volumes will help satisfy the robust demand in the U.S. market.
Meanwhile, even though some improvement in supply of Group II cuts had been detected during the fourth quarter, it appears to have taken a turn for the worse. Sources from both the buy and sell sides agree that all grades have tightened substantially, and any surplus volumes that may become available are quickly being snatched up.
Looking upstream, crude oil futures bobbed up and down while anticipating a fresh forecast from the International Energy Agency on Tuesday. The IEA did boost its global oil consumption forecast. It also said that there are ample oil inventories in North America, but worldwide oil consumption will rise by 1.4 million barrels per day to 89.1 million in 2011, while the global economic outlook is on the road to recovery.
Helping drive futures prices higher was news that the Trans-Alaska Pipeline reopened on Monday after a 10-day outage. A weaker U.S. dollar also contributed to bolstering oil prices after they slipped back near the $90.50 per barrel mark during intra-day trade on Tuesday.
At the close of the Tuesday, Jan. 18, NYMEX session, front month light sweet crude oil futures ended the day at $91.38 per barrel, a small gain of 27 cents from the week earlier settlement at $91.11/bbl.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.