U.S. Base Oil Price Report


The U.S. market was still digesting the latest round of price increases, which were fueled by firm crude oil and raw material costs and a generally balanced supply-demand scenario, with no further revisions reported.

The increase initiatives resulted in markups between 15 and 22 cents per gallon, depending on the grade and the producer, and they induced upward adjustments from several downstream lubricant and additive manufacturers as well.

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Base stock supply is typically ample during the first two months of the year and suppliers try to encourage purchases through attractive pricing to avoid weighty inventories.

This year, however, the market entered the first quarter on fairly balanced-to-snug conditions given the production woes experienced by several U.S. producers in the second half of 2017.

Additionally, suppliers predicted a pickup in demand in the next few weeks as lubricant manufacturers start to build up stocks for the more dynamic spring production cycle, and this was likely to tighten conditions.

This week, most participants reported stable, but not particularly intense, activity, with limited extra volumes available in the API Group I segment as HollyFrontiers Group I plant was undergoing a turnaround in Tulsa, Oklahoma. The shutdown started in late February and was expected to last a little over a month, but the producer has built inventories to cover requirements during the outage.

There were also reports that Petro-Canada had shut down its Group II and III plant in Mississauga, Canada, for a 40-day turnaround. There was no producer confirmation forthcoming about the turnaround schedule.

In other parts of the Americas, there appears to be steady buying appetite for U.S. material from Brazilian consumers.

Prospects for lubricant demand growth in Brazil seem to be more positive than in recent years, and this could lead to a marked increase in the need for imports of high performance base oils, Claudio Pereira da Silva, director of So Paulo-based consultancy LubeKem, commented.

The fuels and lubricants markets were negatively impacted by a political and economic crisis from the second half of 2014 until the end of 2016, which culminated with Brazilian president Dilma Rousseffs impeachment and a corruption scandal at national oil company Petrobras. During this period, Brazilian demand for fuels dipped by 4.7, but the fall in lubricants demand was even more significant, registering a 20 percent decrease to 1.08 million tons in 2016.

However, both markets showed a recovery in 2017, with lubricant demand increasing by around 6.2 percent to 1.15 million tons per year, supported by growth fundamentals such as a higher GDP (up 1 percent), industrial production (up 2.5 percent), automotive production (up 25.2 percent), low inflation and low interest rates, among other positive factors, Pereira da Silva said.

Upstream, West Texas Intermediate futures started the week on an upward trend and rose 2.2 percent to $62.57 per barrel on Monday, reaching the highest settlement since Feb. 27. Futures registered a further bump on Tuesday following a meeting between OPEC and U.S. shale producers at the annual CERAWeek Conference in Houston, Texas.

A new report from the International Energy Agency predicted that the United States would be supplying approximately 80 percent of the worlds demand growth. Canada, Brazil and Norway would cover the remainder, leaving no room for additional OPEC supply, according to the report.

This means that OPEC members would not be able to increase production. In an ironic turn, U.S. shale production has increased thanks to the production cuts implemented by OPEC, which have driven oil prices up, making shale output more viable. OPEC was hoping to phase out their supply cuts after this year, but the organization may have to figure out a way to increase output without allowing prices to go down, according to the IEAs analysis.

On Tuesday, March 6, West Texas Intermediate futures settled at $62.60 per barrel on the CME/Nymex, down 41 cents/bbl from $63.01/bbl on Feb. 27.

Light Louisiana Sweet crude wholesale spot prices settled at $64.54 per barrel on March 5, compared to $66.19/bbl on Feb. 26, according to the U.S. Energy Information Administration.

Brent was trading at $65.79/bbl on the CME on March 6, down 84 cents/bbl from $66.63/bbl on Feb. 27.

Low sulfur vacuum gas oil was at Apr WTI plus $12/bbl ($74.57/bbl) and high sulfur VGO was at crude plus $11/bbl ($73.57/bbl) on March 5. By comparison, low sulfur VGO was hovering at $76.16/bbl and high sulfur VGO at $75.41/bbl on Feb. 26, according to data published by PetroChemWire.

Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.

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