U.S. Base Oil Price Report


Base oil producers focused on getting ready for the traditional uptick in demand that precedes the arrival of spring, but tempered their expectations of a significant improvement in March, as it appeared requirements may be slightly lagging this year.

While several sources agreed that orders had started to pick up, a number of suppliers also admitted that they had not been as strong as at the same time in years past. However, there was widespread confidence that April would turn out to be a robust month in terms of market activity.

Aside from the fact that downstream segments have not yet shown a significant increase in demand levels, other factors such a perception that the market was oversupplied and there were no difficulties in acquiring all the product that was needed was also holding buyers back from placing orders.

That said, the recent upward movement of crude oil prices was prompting a few consumers to secure base stocks ahead of potential price increases that could come about if raw material prices maintained their current course.

The supply and demand conditions seemed to vary according to the different market segments, with API Group I availability described as balanced against requirements, while Group II seemed to be on the longer side.

However, there were expectations that several Group II cargoes would be shipped out into destinations such as India and the United Arab Emirates, narrowing current supply levels. A mixed cargo containing both Group I and II base oils was also heard concluded into Nigeria, while demand for Group I from Mexico and South America was deemed steady, although suppliers mentioned that the Mexican market continued to be affected by a cash flow issue.

On the naphthenic side of the business, the supply and demand ratio appeared to be more balanced than on the paraffinic front, and no price adjustments have been reported, although suppliers said that values were exposed to upward pressure due to the recent climb in feedstock prices.

Market participants active in the marine oil segment have been focusing more attention and resources on the changes required by the new bunker fuel rules due to be enforced by the International Maritime Organization as of Jan. 1, 2020. The new regulations require the reduction of the sulfur content in fuel oil to a maximum of 0.5 percent and will lead to significant modifications in lubricant oil formulations.

Some ship owners and operators are opting for installing exhaust gas cleaning systems, also known as “scrubbers” to meet the new requirements. The Miami Herald reports that the largest cruise companies – all based in South Florida – are overwhelmingly sticking with heavy fuel oil to power ships and installing scrubbers to reduce sulfur output, as it appears to be a lower-cost solution than using the more expensive low-sulfur fuels, but this option was considered less environmentally friendly.

Upstream, crude oil futures edged slightly higher on Tuesday as OPEC-led efforts to limit supply partly offset the restart of Libyas biggest oilfield and also concerns over weaker demand on the back of revised economic growth prospects in China. Expectations that the United States stockpile reports this week would show rising crude inventories also dampened the upswing.

The resumption of oil production in Libya adds more than 300,000 barrels per day to OPEC’s current numbers, and this means that the market will likely be slightly oversupplied, unless there are further production cuts or unscheduled outages, analysts said.

On March 5, West Texas Intermediate April futures settled at $56.56 per barrel on the CME/Nymex, up $1.06/bbl from $55.50/bbl on Feb. 26.

Brent futures for April delivery closed at $65.86/bbl on the CME on March 5, and had settled at $65.21/bbl on Feb. 26.

Light Louisiana Sweet crude wholesale spot prices settled at $64.45/bbl on March 4, compared to $63.62/bbl on Feb. 25, according to the Energy Information Administration.

Low sulfur vacuum gas oil was at April WTI plus $14.00/bbl ($70.59/bbl) and high sulfur VGO was at crude plus $14.75/bbl ($71.34/bbl) on March 4. By comparison, low sulfur VGO was hovering at $70.73/bbl and high sulfur VGO at $70.98/bbl on Feb. 25, 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.

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