U.S. Base Oil Price Report

Sentiment in the United States base oil market was tempered with ample supply and tepid demand, although conditions seemed to be slightly different in the paraffinic versus the naphthenic side of the business.

Trading was also somewhat muted due to the Veterans Day holiday on Monday and industry events taking place in Houston, Texas, on Tuesday and Wednesday this week.

The paraffinic base oil segments were said to be well-supplied, although the API Group I category appeared to be slightly tighter than the Group II sector, given lower domestic production volumes and ongoing plant turnarounds at a couple of Group I facilities. Discounts and other incentives were heard to be bestowed by producers in an effort to move product and avoid inventory builds.

The Group III segment in the U.S., which is largely supplied through imports from South Korea and the Middle East, was said to be relatively more balanced than the other segments.

Within the Group I segment, HollyFrontier started a routine turnaround at its plant in Tulsa, Oklahoma, on Oct. 27 and was expected to resume production on Nov. 18.

On Dec. 1, Calumet will embark on the second part of a turnaround at its Group I/II plant in Shreveport, Louisiana, which will impact its light-vis cuts (60, 80, 100, 150 vis) only. The shutdown was expected to last approximately two weeks. The producer already completed the first part of a maintenance program, which affected its mid to heavy-vis cuts (325, 600, 2500 vis) in early November.

On the naphthenic front, most base oils were said to be fairly balanced against demand, particularly the heavy-viscosity cuts, sources said. This was partly attributed to healthy appetite for exports to Asia, together with domestic demand. On the other hand, requirements from Mexico appeared to have dried up. Mexico hasnt bought a drop in months, a source commented. Prices remained generally steady and temporary volume allowances were less evident than on the paraffinic side, according to buyers and sellers.

San Joaquin Refining has scheduled a two-week routine turnaround at its naphthenic base oil plant in Bakersfield, California, starting Feb. 1. The typical demand slowdown in December would likely allow the producer to build inventories to cover requirements during the turnaround, a company source noted.

In other news, ship owners, refiners, and lubricant producers were preparing for the changes brought about by the implementation of the IMO 2020 regulations, which require the use of low-sulfur marine fuel oil as of Jan. 1. Sulfur in fuel oil must be reduced from 3.5 percent to 0.5 percent.

It was still not clear what the extent of the new rules impact would be on the base oils and lubricants segment. Some participants expected base oil production to be affected by refiners preference to manufacture more marine fuels in detriment to base oil output. There were also reports that marine fuel producers may choose to blend high sulfur fuel oil with lighter fuels to meet the required specifications.

Ship operators were already preparing by either installing scrubbers that would allow them to continue using regular marine gas oil, or were starting to clean the tanks to fill them with the new fuel, sources said. Some companies were opting for shipping goods using liquid natural gas-powered vessels.

Aside from having to deal with increased costs, shipping companies were facing other challenges as well. Several sources have advised that there are compatibility concerns when using VLSFO - very low sulfur fuel oil - from different suppliers, a market player commented. The reasons for the incompatibility were not obvious, but were likely related to the components used by the different suppliers to blend the new fuels.

Upstream, crude oil futures inched up on Tuesday, reversing early losses on renewed optimism that there could be progress towards resolving the trade tensions between the U.S. and China. President Donald Trump announced that talks were advancing well, but warned that the U.S. would only agree to a deal if it was the right move for Washington.

Concerns persist about the impact on oil demand of the ongoing trade dispute that has taken a toll on the Chinese economy, slowed global economic growth, and sent oil prices lower on Monday.

On Tuesday, Nov. 12, West Texas Intermediate December futures settled at $56.80 per barrel on the CME/Nymex, and had closed at $57.23/bbl on Nov. 5.

Brent futures for January delivery were reported at $62.06/bbl on the CME on Nov. 12, and had closed at $62.96/bbl on Nov. 5.

Light Louisiana Sweet crude wholesale spot prices settled at $61.61/bbl on Nov. 11 and had closed at $59.83 on Nov. 4, according to the Energy Information Administration.

In other oil-related news, Abu Dhabi National Oil Co. and nine of the worlds biggest energy traders - BP, Shell, Vitol, GS Caltex, INPEX, JXTG, PetroChina, PTT, and TOTSA (Total) - are partnering to launch a new crude oil futures exchange on the Intercontinental Exchange platform, OilPrice.com reported on Nov. 11. The ICE Futures Abu Dhabi would host the worlds first Murban crude oil futures contracts and was expected to launch in the first half of 2020, subject to relevant regulatory approvals.

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