U.S. Base Oil Price Report

Slightly more positive sentiment was detected among base oil producers this week, as fundamentals appeared to have stabilized and requirement levels have improved somewhat. Base oil consumers also seemed more confident that finished lubricant purchases would gain strength in the next few weeks.

While most suppliers were still concerned about bulging inventories, the fact that more orders have started to come in meant that supply and demand could become more balanced in the spring.

Activity on the spot front has also been more lively and this, together with steadier crude oil prices, was offering support to more stable indications. We have noticed over the past two weeks that spot buying interest has improved and we have not seen any further deterioration on pricing, a source confirmed.

Conversely, a number of players maintained that demand had stayed the same as in previous weeks, with the cold spell in large areas of the United States slowing business.

While API Group I availability was deemed adequate to slightly snug to cover current domestic requirements, Group II cuts were more readily available and that segment remained on the long side, placing downward pressure on pricing.

Some Group II spot indications were especially attractive as sellers were hoping to secure export opportunities, sources said.

Demand from Mexico has slowed down, but there were backlogs in the rail system and the problem has been compounded by the large quantities of fuel that are being shipped to the neighboring country by rail, causing delivery delays, according to sources.

For the time being, there appeared to be plentiful availability of most base oil grades in the U.S., and there was talk about the possibility that producers would adjust plant operating rates to avoid further build-up of inventories.

A couple of units may also undergo maintenance in the first quarter, sources said, although details of which units may be shut down were not forthcoming.

On the naphthenic side, San Joaquin Refining did confirm that its refinery in Bakersfield, Calif, had been taken off-line for a turnaround on Feb. 2 and was expected to resume normal operations on Feb. 17. The producer said most of its products were readily available, but a few were on 50 percent allocation until the plant was brought back up.

Market players were somewhat relieved that crude oil prices were a touch less volatile than in recent weeks, although this may not be a lasting trend. They said that climbing crude prices would likely spur base stock buying activity and lend support to more stable values.

In the span of just six months, crude oil prices jumped by about 20 percent, plunged more than 40 percent, and snapped back 25 percent, according to media reports. December was a real nightmare for the global market, where the swings were $50 per barrel at a low, $86 at a high, and $68 for the average of Brent crude oil, CNBC.com reported.

Crude oil started the week on firm ground, but eased on Tuesday ahead of the State of the Union address, as President Trump was expected to talk about U.S.-China trade relations, and there was a lower volume of trading due to the start of the Lunar New Year.

On Jan. 29, WTI February futures settled at $53.66 per barrel on the CME/Nymex, up 35 cents/bbl from $53.31/bbl on Jan. 29.

Brent futures for April delivery closed at $61.98/bbl on the CME on Feb. 5, and had settled at $61.32/bbl on Jan. 29.

Light Louisiana Sweet crude wholesale spot prices settled at $61.50/bbl on Feb. 4, compared to $58.24/bbl on Jan. 28, according to the Energy Information Administration.

Low sulfur vacuum gas oil was at March WTI plus $10.25/bbl ($65.81/bbl) and high sulfur VGO was at crude plus $10.00/bbl ($64.56/bbl) on Feb. 4. By comparison, low sulfur VGO was hovering at $64.44/bbl and high sulfur VGO at $61.99/bbl on Jan. 28, 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.