U.S. Base Oil Price Report

Plunging crude oil prices and plentiful base oil supplies seem to have prompted Chevron to lower its API Group II base oil prices this week.

Chevron communicated a decrease of 25 cents per gallon on all of its Group II posted prices, effective Nov. 13, "to reflect current market conditions," a company source said.

While it was not a complete surprise that a United States producer would be lowering prices, given the recent descent in crude oil and raw material values, coupled with the lengthening of base oil supply, it was a slightly unexpected move, as postings had been increased only a month ago.

However, fundamentals have reversed course over that period, with crude futures plunging to their lowest levels since December 2017 this week, as an OPEC report predicted a reduction in global oil demand growth in 2018 and 2019. The report also showed a possible increase in non-OPEC supply.

This exacerbated concerns about a potential oil glut.

On Monday, Saudi Energy Minister Khalid al-Falih said that OPEC and its partners would need to trim at least 1 million barrels per day from October's output levels to avoid oversupply, but expectations of OPEC supply cuts came into doubt after U.S. President Donald Trump called for the bloc and its allies to maintain production levels, according to S&P Global Platts.

On Tuesday, Nov. 13, West Texas Intermediate December futures settled at $55.69 per barrel on the CME/Nymex, down $6.52/bbl from $62.21/bbl on Nov. 6.

Brent futures closed at $65.47/bbl on the CME Tuesday afternoon, and had settled at $72.13/bbl on Nov. 6.

Light Louisiana Sweet crude wholesale spot prices settled at $67.83/bbl on Nov. 12, compared to $71.42/bbl on Nov. 5, according to the U.S. Energy Information Administration.

Low sulfur vacuum gas oil was at Dec WTI plus $15.25/bbl ($75.18/bbl) and high sulfur was at crude plus $14.50/bbl ($74.43/bbl) on Nov. 12. By comparison, low sulfur VGO was hovering at $78.60/bbl and high sulfur VGO at $78.10/bbl on Nov. 5, according to data published by PetroChemWire. The FCC margin was $5.19/bbl on Nov. 12. One year ago, it was $14.19/bbl.

One the reasons base oil supply was starting to bulge in the domestic system was that buyers have been trying to work off of existing inventories so as to finish the year with lean stocks; and purchase volumes were therefore kept on the conservative side.

Suppliers were hoping to find a home for those volumes that were not allotted to meeting contractual obligations, but buying appetite for spot cargoes was described as subdued.

Since spot availability of most base oil grades was plentiful, and raw material costs have softened, discussions were heard to be taking place at lower numbers than in the previous week.

The approach of the Thanksgiving holiday in the U.S. on Thursday, Nov. 22, also placed a damper on activity, as this signals the start of the year-end holiday period, when downstream activity tends to decline and some manufacturers either reduce operating hours, or even idle manufacturing for a few days.

Export opportunities were heard to have declined, with markets such as India and China, which had taken large amounts of U.S. base oils last year and earlier this year, heard to be saturated with product at the moment.

In a number of countries such as India, the local currency depreciation against the dollar has made U.S. product less competitive, especially when considering ample availability of regionally-produced base oils.

Furthermore, increasing volumes of attractively priced Middle East base stocks have made their way to several destinations in Asia, displacing material that used to be imported from other regions.

Mexican demand for U.S. base oils was steady, but buyers were delaying purchases, waiting for prices to dip on the back of weakening crude oil and feedstock values.

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