The United States base oil market echoed conditions in other regions, with lengthening supply against a backdrop of gradually softening demand impacting price indications.
Despite the fact that declining requirement levels are usually taken into account in last quarter forecasts, additional capacity entering the global supply system early next year has become a matter of growing concern among suppliers. Some may opt to trim operating rates at their base oil plants to offset the imbalance, sources commented.
Participants mentioned that the expected start-up of the expanded ExxonMobil API Group II base oil plant in Rotterdam, The Netherlands, in early 2019 was likely to cause a shift in supply and demand fundamentals and trade patterns.
Significant volumes of Group II base oils manufactured in the U.S. are regularly shipped to Europe, to meet growing Group II demand, but some of these barrels may not be needed once the expanded plant begins production. Therefore, suppliers might need to find new outlets in the domestic market, as well as overseas, and competition will increase.
The ready availability of most Group II grades was also exerting pressure on spot pricing, not only on these cuts themselves, but also on Group I as consumers can use them interchangeably in certain applications.
Domestic market activity was deemed average for the month of October, while spot business was somewhat lackluster. Sellers were preparing for a few rather difficult weeks ahead as the end of the year approaches.
Meanwhile, appetite for Group I cuts from Mexico was reported as healthy, but margins remained rather lean, sources said, especially as crude oil and raw material costs had hovered at lofty levels in September and early October.
However, oil prices have weakened since then, with both West Texas Intermediate and Brent prices falling about $10 per barrel from the four-year highs reached in the first week of October.
Crude prices continued to move downwards on expectations of global oversupply and high U.S. inventories.
On Tuesday, crude oil futures fell by more than one percent on reports of rising output from top producers Saud Arabia and Russia, and concern that global economic growth and fuel demand would be impacted by the ongoing U.S.-China trade dispute.
West Texas Intermediate October futures settled at $66.18 per barrel on the CME/Nymex on Tuesday, Oct. 30, down 25 cents/bbl from $66.43/bbl on Oct. 23.
Brent was trading at $75.91/bbl on the CME Tuesday afternoon, and had settled at $76.44/bbl on Oct. 23.
Light Louisiana Sweet crude wholesale spot prices settled at $74.75/bbl on Oct. 29, compared to $77.45/bbl on Oct. 22, according to the U.S. Energy Information Administration.
Low sulfur vacuum gas oil was at Dec. WTI plus $14/bbl ($81.04/bbl) and high sulfur was at crude plus $13.50/bbl ($80.54/bbl) on Oct. 29. By comparison, low sulfur and high sulfur vacuum gas oil were at parity at Nov. WTI crude plus $14.50/bbl ($83.67/bbl) on Oct. 22, 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.