Crude oil futures ushered in the New Year registering two-year highs, which prompted base oil participants to keep an anxious eye on developments as feedstock values could turn out to be the key factor impacting prices in coming weeks.
Suppliers said that despite a fairly quiet holiday period, they had started the year in better supply positions than in the past, as demand had been steady during the weeks leading to December 31, and there had been no need for last-minute bargain sales.
Requirements for both naphthenic and paraffinic base oils softened slightly as expected last week, and may not pick up the pace significantly until February, when downstream manufacturers start to pad inventories for the busy spring production season.
Nevertheless, sellers did not appear concerned about the supply/demand balance, as there were a couple of suppliers who were still catching up with orders, and some who were recovering from the production shortfall experienced in the third quarter of 2017.
On the naphthenics side, San Joaquin Refining in particular entered 2018 with limited product to offer, as the producer will be shutting down its naphthenic base oil plant in Bakersfield, California, for a turnaround on Jan. 27. The unit, which can produce 8,100 barrels per day of naphthenic base oils, was expected to be off line for three to four weeks. In preparation for the turnaround, San Joaquin has trimmed its export sales, and placed its light viscosity products on allocation to help build inventory.
Despite a deceivingly serene facade, market players were watching out for signs of possible base stock price convulsions as crude oil values continued to pressure producers' margins.
Crude oil futures jumped over the $60 per barrel mark early in the week - hitting mid-2015 highs - lifted by large anti-government protests in Iran and ongoing supply cuts by OPEC and Russia.
However, numbers eased on Tuesday as U.S. crude production increased substantially, and major pipelines in Libya, together with the Forties pipeline in the North Sea, returned to full operations. Operator Ineos had shut the Forties system on Dec. 11 following the discovery of a hairline fracture.
West Texas Intermediate futures closed on the CME/Nymex at $60.37 per barrel on Tuesday, Jan. 2, 2018, up 40 cents per barrel from $59.97/bbl on Dec. 26.
Light Louisiana Sweet wholesale spot prices settled at $65.51 per barrel on Dec. 29, according to the latest data available from the U.S. Energy Information Administration.
Brent was trading at $66.57/bbl on the CME on Jan. 2, up 45 cents/bbl from $67.02/bbl on Dec. 26.
Low sulfur vacuum gas oil was at Feb WTI plus $15.25/bbl ($75.67/bbl) and high sulfur VGO was at crude plus $13.50/bbl ($73.92/bbl) on Dec. 30. The FCC margin was $8.67/bbl; one year ago it was $17.06/bbl. In comparison, low sulfur VGO was hovering at $73.47/bbl and high sulfur VGO at $71.47/bbl on Dec. 26, according to data published by PetroChemWire.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.