Coming off a long holiday weekend, players in the U.S. base oils arena continue to absorb the latest round of price increases. Sources are surprised that Motiva and Flint Hills Resources have not joined other producers in upping paraffinic postings.
Supply/demand fundamentals remain difficult. Overall availability is very tight while demand continues at a healthy pace. Whether market conditions will relax in coming months is presently unclear, as the summer holiday season gets underway – a time when base oil activity traditionally slows.
Sources expressed concern that there have been virtually no supplies of base oils for spot purchase in recent months. In some cases, even scheduled contract volumes could not be supplied in full by producers to their direct buyers. Although most paraffinic and pale oils are tight across the board, premium API Group III paraffinic grades are severely short. Group II and II+ are also exceptionally tight.
Suppliers noted, however, that in the past several weeks there has been some general improvement, allowing them to cover some shortages and delayed customers requirements, depending on supply source and cut.
Contributing to the overall tight supply situation is Motivas planned turnaround at Port Arthur, Texas. The project commenced last Friday, and the downtime could extend for about five weeks.
This outage, combined with already low inventories at virtually all points of production, a variety of sales controls or allocations, and producers trying to build stocks ahead of the hurricane season, will likely combine to keep availability thin for the coming summer months even if demand subsides.
In addition, sources said that Motiva alerted its direct customers that it has added another grade to its ongoing sales allocation program. Customers buying Star 4 (110 vis) will be restricted to 80 percent of historical volumes effective today, June 1. Motiva, the largest U.S. producer of Group II/II+ base stocks, also is maintaining a 50 percent sales allocation for Star 6 (220 vis) and 110 percent for Star 5+. It is uncertain how long these plans will remain in effect.
As a reminder to the base oils industry and as reported in Lube Report last fall, Motiva will cease production of its Star 3 (Group II 70 vis) and its Star 5+ (Group II+ 130 vis) grades effective Jan. 1, 2012. Motiva provided customers with 15 months of advance notice, saying it planned to focus on areas that complement our processing capabilities and operating efficiencies as well as the needs of the marketplace.
In last weeks early edition of the U.S. Base Oil Price Report, Calumets posted paraffinic price increase was misstated. Calumet increased the posted prices for its full line of paraffinic neutrals falling in both the Group I and II categories by 30 cents/gal on Friday, May 27. Last weeks price chart was correct, reflecting the 30 cents/gal increases.
Feedstock costs remain a key concern for producers. Vacuum gas oil values continued to hold at a large premium to WTI of circa $18 to $20 per barrel for high sulfur and $23 to $25 per barrel for low sulfur VGO. LLS and other similar crude types, as well as some imported crudes also used by some producers, continue to pay a sizeable premium of $15 to $18 per barrel over benchmark WTI crude.
At the close of the Tuesday, May 31, NYMEX session, light sweet crude futures ended at $102.70 per barrel, a gain of $3.11 compared to the May 24 settlement at $99.59/bbl.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.