U.S. Base Oil Price Report

Tighter conditions were reported from most industry segments, and while production at a base oil plant that had experienced an unplanned outage has resumed, some suppliers were still playing catch-up with orders.

HollyFrontiers API Group I plant in Tulsa, Oklahoma, was taken off-line as a precautionary measure given the heavy rains and flooding that affected large areas of the United States in early June, but was restarted a week later and is running well, according to sources familiar with the producers operations. The companys railcars had also been removed from the refinery confines, and this had allowed the producer to resume shipments much faster once the weather improved.

The plant shutdown, coupled with healthy demand, resulted in reduced availability of most Group I cuts, with bright stock being the least accessible for the time being. There were reports that a couple of bright stock cargoes from a producer in the Northeast had been committed to export transactions, and the rest of the supply has been absorbed domestically, with no extra volumes to speak of, according to sources.

Export activity from the U.S. to Mexico continued at a steady pace, but it has slowed a little as more refiners are trying to move product there due to slightly oversupplied conditions in Europe, Asia, and India, a market participant commented.

It was also heard that a Middle East producer of Group II and III base oils has been very active in the Mexican as well as the U.S. markets, given a demand slowdown in China, where the supplier regularly places large volumes.

A majority of Group II producers also saw snug conditions due to robust domestic demand, with a couple of suppliers forced to turn down spot export opportunities.

There were rumblings that a Group II unit on the U.S. Gulf Coast had shut down unexpectedly for about eight days earlier this month and had since restarted operations, but this could not be confirmed. The shutdown was possibly one of the reasons the Group II segment had suddenly tightened up, sources speculated.

Spot paraffinic base oil prices seemed to be holding and receiving further support from climbing crude oil values.

The naphthenic camp was also reporting stable pricing, healthy demand and generally balanced inventories, although the heavier grades appeared to be slightly less sought-after than their lighter counterparts.

Crude oil futures inched up on Tuesday on expectations that data due later in the day would reveal a drop in oil inventories, offsetting some of the concerns about declining global demand. Prices received further support from the imposition of fresh U.S. sanctions on Iran.

On June 25, West Texas Intermediate July futures settled at $57.83 per barrel on the CME/Nymex and had closed at $53.90/bbl on June 18.

Brent futures for July delivery settled at $65.05/bbl on the CME on June 25, and had closed at $62.14/bbl on June 18.

Light Louisiana Sweet crude wholesale spot prices settled at $62.93/bbl on June 24, compared to $59.82/bbl on June 17, according to the Energy Information Administration.

Low sulfur vacuum gas oil was at July WTI plus $15.75/bbl ($73.65/bbl); high sulfur VGO was at crude plus $16/bbl ($73.90/bbl) on June 24. By comparison, low sulfur VGO was hovering at $68.18/bbl and high sulfur VGO at $67.93/bbl on June 17, according to data published by OPIS PetroChemWire.

In other industry news, numerous participants were meeting in Singapore for the 13th ICIS Asian Base Oils and Lubricants Conference this week. Some of the topics discussed during the first day of the meeting related to the changing requirements for marine lubricants as the implementation of the IMO 2020 regulations approached.

Most experts agreed that there are still many uncertainties plaguing not only the shipping sector, but also the fuels, base oils and lubricants industries as the impact of the new regulations cannot be measured yet. One of the main concerns appeared to be whether there will be enough low-sulfur fuel oil available to meet the growing demand, and how fuel prices might be affected by this growth.

Experts also said that the impact has to be assessed throughout the entire supply chain, from the sweet crude oil used to produce the low-sulfur content fuels, to the base oils and additives required to formulate the new marine lubricants. Another major concern was the ensuing increase in investment and transportation costs, and the fact that it may be difficult to pass on these increases to the final consumer.

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