U.S. Base Oil Price Report

A softening level of activity has become more pronounced in the base oil segment with the approach of the year-end holidays, but this is not considered out of the ordinary and participants have therefore made provisions to avoid finishing the year with hefty inventories.

Producers have resorted to offering temporary voluntary allowances and discounts into specific accounts in order to encourage orders, with markdowns in the range of 10 to 20 cents per gallon said to be available. The lower number applies to transactions involving light- and mid-viscosity grades and the higher number to high-vis cuts, sources said.

The discounts were mostly applied to API Group II purchases due to mounting pressure from ample supply, although buyers were also able to obtain lower values for other grades, depending on contract terms and volumes. Buyers were keen on securing only the barrels needed to run daily operations.

Market players expected the downward price pressure to persist for the next three to four months as demand does not usually pick up again until February, ahead of the spring season. "The economics do not support current base oil posted or even contract prices negotiated the first half of this year," a source commented. "I think everyone is waiting for Dec. 1 to see what inventories are like," another source added.

Some players expected the increased demand for low-sulfur marine fuel oils to impact base oil output and pricing ahead of the IMO 2020 rules implementation, as refiners may favor fuel production if it offers better returns. However, the effects were not yet significant enough to change the current pricing dynamics, sources said.

While availability of Group II cuts was ample, supply within the Group I segment appeared to be less abundant due to ongoing turnarounds and recent production cutbacks at a Group I plant.

Calumets partial turnaround at its Group I and II plant in Shreveport, Louisiana, was expected to be completed this week. The producer plans to take the plant off-line in two different phases, with the most recent shutdown only affecting the producers mid to heavy-vis cuts (325, 600, 2500 vis). The second phase of the turnaround will impact the companys light-vis cuts (60, 80, 100, 150 vis) and will take place from Dec. 1 until Dec. 15. There were no shipment disruptions as Calumet had prepared inventories to meet obligations during the turnaround.

HollyFrontier's Group I plant in Tulsa, Oklahoma,was also slated to undergo a routine turnaround starting at the beginning of the month.

Activity in Mexico has slowed down, and interest for United States imports has weakened, although regular cargoes continue to be shipped to various blenders, particularly as the local producer, Pemex, was heard to be running its Group I plant at reduced rates.

While there had been talk of Asian and Middle East base oils making their way to Mexico, there was little evidence of these cargoes in fresh shipping fixtures, sources noted.

Participants involved in Group II exports to Europe have been monitoring developments regarding a waiver that allows imports of base oils into the European Union without a tariff.

Back in early September, a committee met to discuss whether to renew, amend or eliminate the tariff exemption forGroup II base oil imports to the EU. The waiver is set to expire in December.

While the Union of the European Lubricants Industry and the United Kingdom Lubricants Associationwould prefer an extension of the waiver, the European Commission - the EUs decision-making body - is leaning towards a quota on the annual volume of base oil imports that can enter the bloc without a tariff.

The European Commission will discussthe quota for Group II base oils on Nov. 14 and 15, and the European Council will decide whether to approve this decision at the end of November/early December, Harald Boerekamp, senior advisor to the UEIL, explained. The new quota would go into effect on Jan. 1, 2020, with the possibility of changes to the quota after six months.

Upstream, crude oil futures strengthened on Tuesday on optimistic economic data and hopes that the U.S. and China would reach a trade dealand ease tensions between the world's top economies. China has requested U.S. President Donald Trump to remove tariffs imposed in September as part of a "phase one" in the negotiations. The positive sentiment outweighed expectations of another build in U.S. crude stockpiles.

The ongoing trade dispute has impacted not only the economic well-being of the two countries involved, but of other trading partners as well, resulting in reduced crude oil demand and downward price pressure.

On Tuesday, Nov. 5, West Texas Intermediate December futures settled at $57.23 per barrel on the CME/Nymex, and had closed at $55.54/bbl on Oct. 29.

Brent futures for January delivery were reported at $62.96/bbl on the CME on Nov. 5, and had closed at $61.59/bbl for December delivery on Oct. 29.

Light Louisiana Sweet crude wholesale spot prices settled at $59.83/bbl on Nov. 4 and had closed at $58.25 on Oct. 28, according to the Energy Information Administration.

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