The first week of 2020 saw few fresh developments in the United States base oil market, largely mimicking the steady conditions observed over the last several months.
Participants remarked that there had not been any posted price changes for more than half a year, and the unchanged fundamentals continued to apply this week as well. With the exception of a couple of initiatives by two producers in July and September – which were later rescinded – paraffinic producers have maintained their postings intact since last May and naphthenic suppliers since June.
There have been discounts and temporary voluntary allowances granted to select accounts throughout the last quarter in an effort to promote orders, but these appear to have dissipated in recent weeks given that a number of suppliers were able to achieve balanced inventories. The API Group II segment was said to have tightened, with only some heavy grades available for spot business from one producer, and supply in the Group I sector also described as fairly snug.
Base oil players were keeping an anxious eye on crude oil and feedstock prices on the back of tensions flaring up in the Middle East. Crude oil futures jumped late last week, but gave up some gains on Tuesday as investors reevaluated the likelihood of Middle East supply disruptions following the U.S. killing of a top Iranian military leader. Prices had surged during the previous two sessions, with Brent reaching its highest level since September, and West Texas Intermediate rising the most since April.
On Tuesday, Jan. 7, West Texas Intermediate futures settled at $62.70 per barrel on the CME/Nymex, and had closed at $61.06/bbl on Dec. 31.
Brent futures for March delivery were reported at $68.27/bbl on the CME on Jan. 7, from $68.44/bbl on Dec. 30.
Light Louisiana Sweet crude wholesale spot prices settled at $67.02/bbl on Jan. 6 and had closed at $65.08 on Dec. 27, according to the Energy Information Administration.
One of the main focus for many U.S. producers this year will be to find export opportunities as a means to combat supply length in the domestic market. Mexico and Brazil were two of the main outlets in the Americas during 2019 and suppliers hoped this trend would be extended into 2020, particularly if Mexican producer Pemex continued to experience production problems. Aside from Mexican consumers importing base stocks for automotive and industrial lubricant applications, low-viscosity base oils are also used in fuel blending.
Despite the start-up of ExxonMobils Group II plant in Rotterdam, The Netherlands, last year, Europe imported significant amounts of U.S. material, and was anticipated to attract additional product this year. However, the imposition of a new quota for Group II imports of 400,000 metric tons per year, which can enter the European Union tariff-free, may put a crimp on exports into that region.
In production, it was heard that a catalyst change was scheduled at the Excel Paralubes plant in Westlake, Louisiana, this month, with the hydrocracker expected to be down for 25 days. The company did not anticipate having any issues meeting contract commitments as it is in possession of sufficient stocks. The last time this facility underwent a turnaround was in 2017, and the company generally schedules a turnaround every two and a half to three years, a source said. The Excel Paralubes unit has capacity to produce 22,200 barrels per day of Group II base oils, according to LubesnGreases Global Guide to Base Oil Refining.
There were rumblings that Motiva was also preparing to complete maintenance at one of its crude units at its Port Arthur, Texas, refinery in February. According to sources, the maintenance work was not expected to affect base oil production. Motivas production site houses a 40,300 b/d Group II and III base oils plant.
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