U.S. Base Oil Price Report

Certain segments of the U.S. base oils market seem tighter than others, propping up prices and restricting trade, while other sectors seem to be moving at a slower pace than expected for this time of the year.

Activity was also slightly muted as participants were attending the International Base Oils and Waxes Conference organized by the American Fuel and Petrochemical Manufacturers (AFPM) in San Antonio, Texas, March 25-27.

Participants reiterated that availability in the API Group I tier was adequate to cover contract requirements, but there was limited supply for spot business.

A large producer was heard to be offering fewer cargoes for export into Mexico than in previous months, and its prices were less competitive than previously, sources said, which seemed to be a sign that even this particular supplier did not possess many extra Group I barrels.

The Group I market was also tight in Europe, with little to no spot parcels available to meet demand from South America, sources said.

The situation in the U.S. may be exacerbated by a slightly longer than expected turnaround at HollyFrontiers Tulsa, Oklahoma, Group I plant. Although no producer confirmation could be obtained, there were reports that the shutdown had been extended by a week to 10 days and the plant would not be back on stream until the first part of April. The unit can produce 9,500 barrels of Group I oils per day, and the producer has been able to cover contractual obligations during the turnaround as it had built inventories ahead of the shutdown.

The Petro-Canada base oil plant in Mississauga, Canada, was also heard to be still shut down for maintenance, and was expected to be restarted in early April. The turnaround at the 11,660 b/d Group II and 4,000 b/d Group III plant was expected to last 40 days.

The Group III tier in the U.S. was also heard to have experienced some tightening due to a turnaround at a base oils plant in Asia, and some production hiccups at a Middle East facility.

The SK Lubricants base oil plant in Ulsan, South Korea, was heard to be undergoing a turnaround and extra availability from the producer has been therefore limited. The producer is closely monitoring sales over the next few months, a source familiar with the companys operations said. The Ulsan plant can produce 14,000 b/d of Group II and 26,000 b/d of Group III base oils. Imports of base oils produced by SK are regularly imported to the U.S. to fulfill domestic requirements.

There were also unconfirmed reports that the Shell-Qatar Petroleum gas-to-liquids refinery in Ras Laffan, Qatar, might be due for a turnaround, possibly leading to reduced base oil output for a couple of months. Sources conjectured that the producer might be securing material from Abu Dhabi National Oil Co. to cover its internal base oil requirements for lubricant production during the shutdown, leading to a tightening of Group III availability from the Middle East. In recent months, Adnoc has increased the volumes of Group III oils offered to U.S. consumers.

Meanwhile, demand in most base stock sectors remains slightly disappointing. This was partly attributed to lingering winter conditions in many areas of the U.S. Uncertainties in the stock market were also placing a damper on buying activity, sources explained.

Upstream, crude oil futures teetered within a narrow range as investors looked for direction and awaited official data about U.S. stockpiles from the Energy Information Administration.

The key factors impacting crude prices over the last few days have been tensions in the Middle East, concerns about Venezuelas production decrease, and speculation that the OPEC-led production cuts would be extended into 2019.

On Tuesday, March 27, West Texas Intermediate futures settled at $65.25 per barrel on the CME/Nymex, up $1.85/bbl from $63.40/bbl on March 20.

Light Louisiana Sweet crude wholesale spot prices settled at $67.84 per barrel on March 26, compared to $64.59/bbl on March 19, according to the U.S. Energy Information Administration.

Brent was trading at $70.11/bbl on the CME on March 27, up $2.69/bbl from $67.42/bbl on March 20.

Low sulfur vacuum gas oil was at May WTI plus $11.50/bbl ($77.05/bbl) and high sulfur VGO was at crude plus $10.50/bbl ($76.05/bbl) on March 26. By comparison, low sulfur VGO was hovering at $72.06/bbl and high sulfur VGO at $69.56/bbl on March 19, 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.