The first signs of the traditional summer slowdown have emerged in the U.S. base oil market, with demand tapering off slightly, and supply described as ample to cover current requirements.
A majority of market players noted that while buying interest remained healthy, it had started to decline a little in late May, and this trend was expected to become even more pronounced in June.
Downstream lubricant sales have weakened, and as a result, demand for base oils was also experiencing a drop as blenders have become more conservative in terms of orders. While the flow of orders remains fairly steady, the volumes being secured are not as substantial as in previous months, suppliers conceded.
Buying appetite in Mexico for U.S. material remains robust, but buyers were hoping to obtain lower-priced cargoes because of the weakening of the local currency against the U.S. dollar. Sellers, on the other hand, said that certain grades remained fairly tight, and there were not many discounts available for spot deals.
Sellers, on the other hand, said that some grades remained fairly tight, and there were not widespread discounts available for spot deals, except for perhaps the heavier cuts. It was heard that spot export prices for the 600-vis cut, for example, had softened by about 5 to 10 cents per gallon.
There had also been speculation that U.S. consumers would be receiving an increased number of offers from Asian producers, as Middle East material was gaining territory in Asia, and suppliers were therefore looking for product outlets in other regions.
However, U.S. participants said they had not seen more product movements from Asia than usual. This could partly be attributed to a number of current and upcoming turnarounds at Asian base oil facilities, which are likely to tighten supply in that region.
Aside from the changing supply/demand factors, participants were concerned about the sharp drop of crude oil values over the last couple of weeks.
U.S. producers were successful in introducing increases into the domestic market in May as they were able to export surplus material.
A few increase announcements have emerged from additive and finished lubricant producers on the back of these base oil price hikes, and a number of manufacturers were still mulling the possibility of adjusting numbers.
However, base oil stocks seem to be mounting and this, coupled with the drop in feedstock costs, could start to exert downward pressure on pricing.
Sliding crude oil can have a bearish psychological effect on buyers, a source noted, perhaps having a bigger impact on prices than a direct economic effect on the producers.
Crude oil prices have tumbled after reaching three-year highs on news that OPEC may be phasing out production cuts implemented since 2017. Values were hovering near the $65 per barrel mark this week, from levels above $70 per barrel in early May.
Prices fell about 2 percent on Monday, with U.S. crude touching its lowest level in nearly two months amid growing U.S. output, possible global supply growth, and ongoing trade tensions.
WTI futures settled at $65.52 per barrel on the CME/Nymex on Tuesday, June 5, down $1.21/bbl from $66.73/bbl on May 29.
Light Louisiana Sweet crude wholesale spot prices settled at $73.36 per barrel on June 4, compared to $75.17/bbl on May 28, according to the U.S. Energy Information Administration.
Brent settled at $75.38/bbl on the CME on June 5, down 1 cent/bbl from $75.39/bbl on May 29.
Low sulfur vacuum gas oil was at July WTI crude plus $13.25/bbl ($78/bbl) and high sulfur VGO was at crude plus $12/bbl ($76.75/bbl) on June 4. By comparison, low sulfur VGO was hovering at $80.71/bbl and high sulfur VGO at $79.21/bbl on May 30, according to data published by PetroChemWire.
In other news, Motiva has scrapped plans to expand the Port Arthur, Texas, refinery because of hurricane worries, following an extended shutdown caused by Hurricane Harvey last year, Reuters reported.
The U.S. refining unit of Saudi Aramco had announced only two months ago that Motiva was considering adding up to 900,000 barrels per day of processing capacity to the companys sole U.S. refinery, the 603,000 b/d Port Arthur unit. The Port Arthur refinery houses a 40,300 b/d API Group II/III base oil plant. While the company remains committed to expanding its processing capacity, it will likely consider other locations for the project.
Several refiners and producers from other industries are advocating for the federal government to build a storm surge barrier to prevent future storms from pushing water in nearby Galveston Bay and flood refining and manufacturing centers in Texas City, Texas, and Houston, the Reuters article added.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase inExcel format.