Activity in the U.S. base oil market proceeded at a steady pace, although there were some segments that showed a bit of a slowdown, commensurate with the start of the summer season.
Sources said weakening demand had been taken into account in annual projections, so it was not a surprise that demand had weakened slightly for some of the grades, as this tends to happen in the early summer every year.
No dramatic changes were noted in overall market conditions, but there has been a leveling off of demand, a source conceded.
Producers were anticipated to maintain current posted prices for as long as possible, as base stock increases have only recently been implemented to offset the steep climb in crude oil values.
Domestic demand was characterized as fairly healthy, with prices holding at steady levels, but buying interest for spot export volumes has contracted. Our inventories are well-balanced, but I have noticed a recent lull in the spot export market, a seller remarked, while another supplier acknowledged that calls from traders have slowed. This seemed to apply to the API Group II segment in particular, since supply in the Group I tier was still deemed balanced-to-tight.
Aside from less vigorous demand, the export sector has also witnessed a softening of prices for the Group II 600-vis cut as it appears to be abundant, possibly because most plants have been running well.
A couple of suppliers were heard to be shipping Group II cuts to Mexico at competitive prices, and some spot numbers have softened by five to ten cents per gallon.
However, a large refiner has not yet lowered its numbers for export into Mexico, while a second producers stocks were in balance, so the supplier was under little pressure to decrease its spot offers.
The more conservative approach to purchases from spot export buyers was partly attributed to the recent fluctuations in crude oil values and the lack of certainty regarding price direction.
Crude oil prices showed a moderate upward movement this week as socio- political tensions in Iraq persisted following the general election held on May 12. A standoff between various institutions and coalitions would delay the process of forming a new Iraqi government and likely put the awarding of any new oil contracts on hold, due to uncertainties over who has the authority to sign them, Oilprice.com reported. Iraq is OPECs second-largest oil producer.
The upcoming OPEC meeting on June 22 was also expected to stir heated discussions as news emerged that the U.S. government had asked Saudi Arabia to increase oil production before Washington pulled out of the Iran nuclear deal in order to cover any potential output disruptions in that country.
Reports emerged that not only Saudi Arabia was producing more oil than the quota stipulated by the OPEC, but also Russia, which is not a member of the OPEC. There was increased speculation that the two countries might decide to raise production without consulting the rest of the members.
Meanwhile, West Texas Intermediate futures settled at $66.36 per barrel on the CME/Nymex on Tuesday, June 12, up 84 cents/bbl from $65.52/bbl on June 5.
Light Louisiana Sweet crude wholesale spot prices settled at $74.60 per barrel on June 11, compared to $73.36/bbl on June 4, according to the U.S. Energy Information Administration.
Brent settled at $75.88/bbl on the CME on June 12, up 50 cents/bbl from $75.38/bbl on June 5.
Low sulfur vacuum gas oil was at July WTI crude plus $13.75/bbl ($79.85/bbl) and high sulfur was at crude plus $12.50/bbl ($78.60/bbl) on June 11. By comparison, low sulfur VGO was hovering at $78/bbl and high sulfur VGO at $76.75/bbl on June 4, according to data published by PetroChemWire.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase inExcel format.