U.S. Base Oil Price Report

The U.S. base oil market seemed to be moving along at a sedate pace, despite expectations that demand would be picking up before slowing down again, ahead of the Thanksgiving holiday in late November.

Participants said that there were perhaps too many economic and political uncertainties affecting the markets, such as the ongoing United States-China trade dispute, an unclear direction in manufacturing segments, and the impeachment inquiry into President Donald Trumps phone call with the Ukrainian president, Volodymyr Zelinsky.

Following the ExxonMobil price increase and its swift withdrawal a few days later, no further initiatives have emerged. Most producers are doing their best to maintain the pricing structure, and commented that conditions are supportive of current levels.

Some discussions seem to center on the new International Maritime Organizations 2020 regulations, which require the use of low-sulfur marine fuel oils as of Jan. 1. There are expectations that those refiners who have the capability to produce the low-sulfur fuels might be optimizing their feedstock streams to the detriment of base stock output.

However, participants said that there has not been a noticeable impact on base oil supply so far. I dont think a lot of streaming is being done to the extent it is affecting lube supply or throughput in the refineries - yet, a source commented.

The impact was anticipated to become more evident in November and December as there will likely be a jump in demand for the low-sulfur marine fuels, although requirements for base stocks also tend to decline at that time of the year. The refining changes might help balance base oil supply and demand, sources noted.

The 2020 marine fuel requirement will be a factor as its phased in but, I think it will almost be welcomed by refiners due to the fact that there is more than ample supply, a source explained.

A number of suppliers expressed concern that many players do not seem to be aware of the potential impact that the IMO 2020 implementation may have on the base oil market.

A source pointed out that historically, base stock producers have decreased prices in August due to the oversupply situation the market typically experiences at the end of the summer.

This did not happen this year, and nobody is trying to understand why, the source added.

While base oil prices have softened during the fourth quarter in the past, there have also been some exceptions. Producers actually increased prices in October of 2017 due to the effects of Hurricane Harvey on U.S. Gulf Coast production, and in October 2018 on the back of steep crude oil and feedstock values.

Furthermore, the North American base oil sector does not seem to be long at the moment. Sources explained that producers have been busy supplying the domestic market, as well as Mexico, South America and Europe.

Exports of API Group II base oils to Europe were expected to continue declining given the start-up of the ExxonMobil Group II plant in Rotterdam, but requirements from Mexico and South America have been fairly steady. Low-viscosity base oils are moving to Mexico to be used as a fuel supplement, while bright stock was also heard to be in continuous demand.

However, some South American segments may be experiencing a slowdown in the short term as inventories are high, sources said.

Unlike last year and earlier this year, there are few U.S. shipments moving to India because that market is predominantly being supplied by South Korean and Middle East producers.

Sources also mentioned that turnarounds at Calumets Group I, II and III base oil plant in Shreveport, Louisiana, and HollyFrontiers Group I unit in Tulsa, Oklahoma, during this quarter would be tightening supply further. There were no additional details forthcoming about the shutdowns.

Upstream, oil futures moved up on Tuesday as unrest in Iraq and Ecuador raised supply concerns, but worries about the ongoing U.S.-China trade dispute capped the markets gains after it looked highly unlikely that a deal would be reached in the short term. Potential attacks by Turkey on Kurdish forces in northeast Syria could take place close to the Iraqi border, leading to a refugee crisis.

In Ecuador - one of the smallest OPEC producers - protests against austerity measures and a suspension of fuel subsidies could reduce the countrys oil output. State-run oil company Petroamazonas suspended operations at three oil fields on Monday.

On Tuesday, Oct. 8, West Texas Intermediate futures settled at $52.63 per barrel on the CME/Nymex, and had closed at $53.62/bbl on Oct. 1.

Brent futures for December delivery were reported at $58.24/bbl on the CME on Oct. 8, and had closed at $58.89/bbl on Sep. 24.

Light Louisiana Sweet crude wholesale spot prices settled at $55.66/bbl on Oct. 7, had closed at $57.99 on Sep. 30, according to the Energy Information Administration.

Low sulfur vacuum gas oil was at Nov. WTI plus $15/bbl ($67.75/bbl) and high sulfur VGO was at crude plus $14.75/bbl ($67.50/bbl) on Oct. 7. By comparison, low sulfur VGO was hovering at $68.17/bbl and high sulfur VGO at $67.92/bbl on Sep. 30, according to data published by OPIS PetroChemWire.

In other crude oil news, shipping rates have increased significantly following a series of sanctions on Chinese transportation giant China Ocean Shipping Co., and limitations placed on the movement of Venezuelan crude oil tankers, Reuters reported in an article on Oct. 8.

The new IMO rules capping the amount of sulfur used in marine fuels have added to rising rates, because they lift the cost for ship owners who had in the past relied on less costly bunker fuel and as of Jan. 1 will have to switch to cleaner-burning marine fuel or diesel fuel, the Reuters article added.

In automotive-related news, as the strike against General Motors by the United Auto Workers enters its fourth week, warehouses are getting full and truck drivers are being let go because they cannot transport and deliver auto parts to GM plants, The New York Times reported. The impact of the strike stretches from Mexico to Canada, where GM plants that depend on American factories have been shuttered, putting thousands out of work. Analysts estimate that GM has lost $600 million as a result of the strike, the newspaper noted. The prolonged strike is impacting all segments related to the automakers operations, including lubricant and additive suppliers, sources said.

Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase inExcel format.