The fairly bright luster swathing the U.S. base oils market during the summer and early fall is starting to get tarnished by a lengthening supply/demand balance, coupled with downward price pressure.
Suppliers are becoming less optimistic about the market outlook, as requirements have started to dwindle and are not expected to improve substantially until possibly the end of the first quarter, at which point additional product may be coming on-stream as well.
However, many acknowledged that the market was behaving as expected for this time of the year, and that the slowdown was just part of the game.
While declining crude oil and derivatives prices have relieved some of the pressure on production margins, they have also resulted in reduced run rates at several refineries because demand for products has decreased and prices are less attractive than earlier in the year.
Some refiners are also taking advantage of current conditions to perform maintenance at their facilities, sources commented.
While there were unconfirmed reports of turnarounds taking place at ExxonMobil and PetroCanada base oil plants in October, it was heard that operating rates at a number of other base oils plants had also been trimmed, which has helped manage inventories, according to sources.
Nevertheless, some suppliers are keen on selling as much product as possible ahead of the December holidays, and spot prices continue to be exposed to downward pressure as a result.
API Group II spot prices were said to be experiencing the most erosion, with some price ideas heard at around $2.97/gal FOB U.S. Gulf, particularly for export business, which would place values below some Group I levels.
Export opportunities were being watched with peaked interest, as domestic demand is not likely to absorb all of the U.S. production, sources explained, with some buying interest noted from Mexico, Brazil, Colombia and India.
Petroleos de Venezuela (PDVSA) was heard to have issued a purchase tender for a total of 18,000 tons of base oils, mostly of API Group I heavy-vis cuts, last week. A U.S. supplier said that it did not have enough heavy-vis oil to offer in the tender, but that a second supplier may have participated, although this could not be confirmed. It was widely believed that the tender was going to be fulfilled with European product, as there was plentiful availability in that region and prices were expected to be competitive.
Upstream, West Texas Intermediate (WTI) crude futures slipped on expectations that U.S. government data would show that crude inventories have increased to the highest levels in four months on reduced consumption.
WTI settled on the CME/Nymex at $98.20 per barrel on Tuesday, Oct. 29, up 40 cents from last Tuesdays settlement at $97.80/bbl.
Brent crude was trading at around $109.01 per barrel late yesterday on the CME, down 96 cents from $109.97 a week ago.
LLS (Light Louisiana Sweet) was trading at a premium to WTI of around $2.10/bbl on Oct. 29, compared with $1.80/bbl on Oct. 19.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.