The U.S. market received a glimmer of good news this week when Holly cancelled its sales control plan. Sources see other, albeit subtle, signs that the severe supply situation could be easing.
On Monday, Holly issued a letter to its customers alerting them that a fairly long-standing sales control plan had been withdrawn. The company reiterated that availability was finely balanced and that there was no surplus for the pure spot market.
Unfortunately, the largest API Group II producer, Motiva, remains on its strict sales allocation, while Chevron too maintains its allocation program. Many other producers are also sticking with some level of sales controls. No doubt all suppliers continue to keep a watchful eye on volumes being released to their customers, sources noted, as there remains a deficit of readily available base stocks.
Meanwhile, players indicated that a spot cargo (or cargoes?) of imported material, possibly Group I and/or II, found its way into the hands of several domestic consumers, offering some much needed relief to an otherwise desperate shortage of key base stocks.
One source said that Chinese demand has fallen off recently, which could explain the fresh shipment of imported oil into the U.S. At the same time, buying interest remains very healthy throughout Europe, and buyers there likely competed for the same quantities. It was reckoned that the seller fetched higher prices in the U.S.
Domestic pricing remains stable, with the round of price hikes imposed by producers in the last month holding. A number of buyers said that they could tolerate the steeper prices if it meant they would be assured of receiving their much-needed requirements. On the other hand, a few consumers were heard asking their suppliers for discounts, but apparently were unsuccessful in their pleas.
Upstream, crude oil prices have tempered substantially in the last few sessions, shedding about $8 per barrel to around $93 to $94/bbl levels not seen since February. Despite this drop, suppliers contend that base oil prices should remain unchanged due to the still-high demand against thin availability.
Hurricane season has officially begun, but so far there are no significant storms gathering strength that could threaten refiners positioned along the U.S. Gulf Coast in the foreseeable future. The current lack of pesky weather, however, does not deter producers from being prepared. But building stocks is very challenging, and whether inventories can be beefed up sufficiently within the next few months remains to be seen.
At the close of the Tuesday, June 21, NYMEX session, front-month light sweet crude futures ended the day at $93.40 per barrel, a loss of $5.97 from the week earlier settlement at $99.37/bbl.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.