Lofty feedstock costs alongside dusty posted prices are keeping U.S. base oil market participants on guard.
Even though crude oil values have lost some steam this week – tumbling off highs of $87 to $88 per barrel reached last week – they are still considered high at near $83/bbl. And these levels, well over $80/bbl, are putting a big squeeze on base oil refining margins, according to a multitude of market players.
Despite this, a widespread posted price increase has yet to materialize even though a number of consumers have been dreading such a move for some weeks. Last week, all naphthenic producers issued price hikes of 20 to 25 cents per gallon, effective throughout the month. However, those initiatives did not seem to have any influence on the paraffinic side.
Demand is still generally healthy across-the-board. In some cases, consumers are hard pressed to find sufficient volumes of certain paraffinic grades along with a few hard-to-find naphthenic cuts.
Several mid-to-heavy vis pale oils are in big demand, particularly from offshore consumers. Several traders as well as some direct buyers in Europe and Asia are seeking large slugs of heavy pale oils, but to no avail.
However, one potential buyer said that even if there were some spot barrels to be offered, the sellers prices are too high to justify at present.
Some players on both side of the pond are speculating that there may be plenty of base oils for sale before the end of the year and at attractive pricing for the buyer.
Suppliers do not tend to agree with that logic saying that base oils are really well balanced and prices are firm and should remain as such. They added that they see no change in market fundamentals in the coming months.
It is understood that several scheduled downtimes are planned during the first quarter, with a few of these outages lasting up to four weeks. If demand remains steady during this time, inventories will be low heading into the spring buying season, which usually kicks in during March-April, sources pointed out.
Otherwise, the market is fairly quiet this week. Most likely participants are taking a breather following hectic schedules linked to NPRA meetings and activities a week earlier.
Crude oil futures took a downturn this week, following big hits in the indices. A week prior, crude had reached $88/bbl, a level unseen for more than two years. But futures have held above the $80/bbl mark since the start of November.
At the close of the Tuesday, Nov. 16, NYMEX session, light sweet crude futures ended the day at $82.34 per barrel, a loss of $4.38/bbl compared to the Nov. 9 settlement at $86.72/bbl.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.