Crude oil prices skyrocketed over the weekend after a drone attack disabled two of Saudi Arabias main oil production facilities, causing a great deal of concern to base oil producers – particularly if oil values remain at the lofty levels reached over the last couple of days.
What a difference 24 hours can do to a market, a source commented, as participants were trying to absorb the news of the crude oil hikes and understand what the consequences might be for base oil values.
The third quarter of the year is typically a difficult time to implement base oil price increases as demand is tempered by a slowdown in output at lubricant blending plants. Historically, base stock prices often decrease in the last few months of the year because suppliers like to offer incentives to capture additional orders and lower inventory levels.
However, if crude oil prices do not retreat, producers margins would be squeezed further and base oil prices could be exposed to a significant amount of upward pressure.
For the time being, suppliers have adopted a holding pattern until things settle down, as one source described the situation, and continued to monitor developments on the feedstock and crude oil fronts. Its going to be a roller coaster of a market for crude, another source noted.
The impact of the crude oil spikes on base oils was likely to take center stage in discussions at the annual Independent Lubricant Manufacturers Association meeting taking place in Colorado Springs, Colorado, Sep. 21-24.
On Monday, West Texas Intermediate crude futures surged over 14.8 percent to close at $62.90 per barrel, following news of the attack on the two Saudi crude wells, which shut down about 5.7 million barrels of daily crude production, or 50 percent of the countrys output. Brent futures rose by as much as 19.5 percent in early trading to $71.95 per barrel – the biggest jump on record – but settled lower at $69.02.
Oil prices were trading down sharply on Tuesday on assurances from the Saudi Arabian government that the damaged oil facilities would be repaired faster than expected. Prices were also capped by expectations of a large build in United States crude inventories, together with signs of an economic slowdown in China, which is one of the biggest consumers of oil.
Futures also came off their highs after President Donald Trump said he was authorizing the release of oil from the Strategic Petroleum Reserve to keep the markets well-supplied.
On Tuesday, Sept. 17, West Texas Intermediate futures settled at $59.34 per barrel on the CME/Nymex and had closed at $57.40/bbl on Sep. 10.
Brent futures for November delivery were reported at $64.55/bbl on the CME on Sep. 17, and had closed at $62.38/bbl on Sep. 10.
Light Louisiana Sweet crude wholesale spot prices settled at $67.40/bbl on Sep. 16, and had traded at $61.13 on Sep. 9, according to the Energy Information Administration.
Low sulfur vacuum gas oil and high sulfur VGO were at Oct. WTI plus $12.75/bbl ($75.65/bbl) on Sep. 16. By comparison, low sulfur and high sulfur VGO were both hovering at $70.60/bbl on Sep. 9, according to data published by OPIS PetroChemWire.
In terms of base oil demand, domestic requirements were heard to be fairly steady, although not robust, both on the paraffinic and naphthenic sides. Participants said they were keeping an eye on the workers strike at General Motors, which could impact automotive lubricant demand.
Nearly 50,000 GM auto workers are now on strike for the second day in a row, with employees picketing around the clock outside more than 50 U.S. factories because of the companys recent decision to close a number of plants, among other complaints. One of the workers demands is that GM keep jobs in the U.S. and reopen its idled factories, Vox.com reported.
Meanwhile, U.S. export activity has slowed down as well. Sellers lamented the fact that there is competitively priced product circulating the market, and this, combined with exchange rate fluctuations in Mexico, has caused that part of the export segment to decline. There appears to be an influx of deep-sea low-viscosity base oils into Mexico to blend with diesel, sources said.
The base oil market is well-supplied at the moment, but availability could tighten as there are shutdowns planned in the fourth quarter at HollyFrontiers and Calumets base stock facilities, while Motivas base oil unit in Texas was heard to be running below capacity. Further details were not forthcoming at the time of writing.
In other news, Greenpeace activists halted traffic in the busy Houston Ship Channel last Thursday, the Houston Chronicle reported.
As Democratic presidential candidates arrived into the city of Houston for a televised debate, 11 of the protesters rappelled off the busy Fred Hartman Bridge, blocking all shipping traffic in the waterway and preventing vessels from reaching refinery terminals in the Houston area.
The action was intended to confront the oil industry by blocking the countrys largest ship channel while the top-polling presidential prospects entered the city. The protesters intended to stay there for 24 hours, but authorities had retrieved all of them by 1:30 a.m., according to Greenpeace. In all, the channel was blocked for 18 hours.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase inExcel format.