U.S. Base Oil Price Report

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Base oil producers hoped that the start of the spring production season would provide impetus to base oil orders, and indeed, there was evidence that demand levels had begun to increase.

Most suppliers have been dealing with high inventories given that supply has outpaced demand for the last three or four months. The months of November, December and January were so slow that any signs of improvement are encouraging, a source emphasized.

A couple of other participants concurred and added that March demand was likely to be quite steady, but come April, activity would likely flourish, resulting in robust demand and tighter supply conditions. That is also the time when refiners switch from making winter fuels to summer fuels, which are less volatile. Summer fuel is more expensive to manufacture, one of the sources added.

In particular, buying interest for export barrels has intensified over the last few weeks. We have noticed an uptick into the export spot market, a source commented, while another confirmed that there have been several export transactions finalized, including a number of cargoes to India and the United Arab Emirates.

Large amounts of API Group I and II base oils have moved to India, but prices were lower than sellers would have liked them to be, as U.S. product had to compete with material from Northeast Asia.

The increase in buying appetite from India and the Middle East was partly attributed to the shutdown at a refinery in Yanbu, Saudi Arabia. The Group I and II base oil plant was expected to be down for about two months, according to sources, preventing the movement of product to those destinations.

There will likely be a reduction of Group II barrels moving from the United States to Europe in coming months due to the start-up of ExxonMobils Rotterdam plant in The Netherlands, but exporters have been securing alternative takers of their base oils.

Demand from Mexico has also grown over the last month. The fresh export deals were helping the U.S. market become less oversupplied, with a couple of paraffinic base stock producers noting that exports have helped them achieve a well-balanced inventory position.

Participants believed that domestic base oil prices had bottomed out, and were now receiving support from steeper crude oil and feedstock values. I cant see the market price going much lower, a source noted, and although no posted price adjustments have been implemented of late, some players admitted that domestic pricing remained fairly competitive. As a result, some producers were directing more of the vacuum gas oil feed to other parts of the refinery, hoping for better returns.

At the same time, base stock buyers acknowledged that having a number of offers to choose from was beneficial, and reiterated that they had not seen a shortage of product. They also mentioned that 2018 had been difficult as they had been unable to recoup the base oil price increases implemented throughout the year. The competitive price activity seen of late was a nice respite, a source noted.

On the naphthenic front, there were no major changes reported, with the market described as well-balanced domestically. Producers were keeping a watchful eye on crude oil prices, as climbing values have started to exert upward pressure on base oil indications.

Crude oil futures were mixed on Tuesday, as Brent moved up while West Texas Intermediate slipped following President Trumps comment that OPEC should relax its output cuts so that oil prices would be lower. Both benchmarks had hit more than three-month highs on Feb. 22 on expectations of tightening supply and hopes that a U.S.-China trade deal would be finalized.

On Feb. 26, West Texas Intermediate (WTI) April futures settled at $55.50 per barrel on the CME/Nymex, down 59 cents/bbl from $56.09/bbl on Feb. 19.

Brent futures for April delivery closed at $65.21/bbl on the CME on Feb. 26, and had settled at $66.45/bbl on Feb. 19.

Light Louisiana Sweet crude wholesale spot prices settled at $63.62/bbl on Feb. 25, compared to $64.78/bbl on Feb. 18, according to the Energy Information Administration.

Low sulfur vacuum gas oil was at April WTI plus $15.25/bbl ($70.73/bbl) and high sulfur VGO was at crude plus $15.50/bbl ($70.98/bbl) on Feb. 25. By comparison, low sulfur VGO was hovering at $70.84/bbl and high sulfur VGO at $71.09/bbl on Feb. 15, 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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