U.S. base oil demand includes a healthy appetite for a number of hard-to-find grades in both the paraffinic and naphthenic sectors. Some players are astonished how strong buying interest remains, considering that October is often a quieter month.
Sellers agree that the worrisome tight base oil supply situation, dominant for much of the summer and early fall, will likely continue for the remainder of 2010.
Although suppliers inventory positions had been replenished to some extent in August and early September, this is no longer the case, sources said. A few sellers pointed out that any surplus product that happened to become available has been quickly sold to offshore buyers. In these cases, the selling prices were equal to or even at a premium to domestic business.
The search for heavy pale oils remains a key focus for many buyers. All naphthenic producers say that they are sold out, and supply of 750 to 2000 vis top-quality cuts will remain tight for the foreseeable future. Sources indicate that some off-spec or sub-standard low vis grades may be in better supply, although this could not be confirmed at press time.
Meanwhile, both buyers and sellers confirm that a spread of around $3 to $3.65 per gallon FOB remains indicative of most regular ongoing naphthenic base oil business. This price range does not include specialty segments. Sources also noted that other business may be concluded below or above this speculative range, depending on end use.
Looking upstream, crude oil futures rose to their highest level in eight weeks on speculation that central banks will keep stoking economic growth. Also the return of the Bank of Japan and its pledge of asset purchases, along with a weaker U.S. dollar against the euro, helped spur crude oil higher, analysts said.
Oil futures climbed by about 2 percent as the Japanese Central Bank said it would keep the benchmark interest rate at virtually zero. Federal Reserve Bank Chairman Ben S. Bernanke said on Monday a first round of asset purchases in the U.S. improved the economy and that further buying is likely.
Some energy experts, however, think that crude oil may be overbought after climbing to an eight-week high and will be vulnerable to a drop if prices fail to rally further.
Prices rose as fresh economic data from the U.S. and China also bolstered optimism that demand is growing in the worlds two largest energy-consuming countries, energy consultants added.
At the close of the Tuesday, Oct. 5, NYMEX session, light sweet crude futures ended the day at $82.82 per barrel, a hefty gain of $6.64 compared to the Sept. 28 settlement at $76.18/bbl.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.