Price ideas in the U.S. base oil market remain firm in the wake of a still-tight overall supply scenario. Demand, however, looks as if it is finally relaxing amid the summer doldrums.
Buyers interest may have slowed just this week ahead of the extended July 4th weekend, but sellers contend that activity has trailed off somewhat from the robust pace seen the past several months.
Despite this slight let-up in demand, a severe shortage on API Group II/II+ grades continues as Motiva and Chevron remain on sales allocation programs. Premium Group III cuts also remain extremely tight. Suppliers say not only has there been no room to entertain new business, but they have had to pull back on some requirements for their regular customers this year due to short availability.
Producers from both the paraffinic and naphthenic arenas reiterate that inventory positions are low. It has been very difficult even to attempt to rebuild stocks due to the recent catching-up phase that many suppliers had to endure as the result of record floods, transportation problems and sustained healthy demand.
The May floods along the Mississippi River (as well asother waterways) led to a back-up in filling orders as railcars and barges were sidelined. It is only recently that those back orders are finally being covered, sellers added.
On the feedstock front, there could also be a slight improvement developing as crude oil values have dropped even further this week and are now back around the low $90s per barrel. Availability of vacuum gas oil appears to be on the mend too. The Valero Aruba refinery, which produces VGO, diesel and jet fuel, is believed to have recently increased its operating rates, after running at circa 50 percent capacity for much of the year and dealing with operating issues. Its first scheduled export shipment of VGO cargo is slated for around July 6-8. According to sources, the Aruba plant supplies a substantial amount of VGO (offering up to six cargoes monthly) to refiners in the U.S. Gulf Coast as well as other strategically situated foreign locales.
There remains a stiff premium of $14 to $18 per barrel over WTI for VGO as well as for imported and domestic crude types such as Light Louisiana Sweet. This spread is slightly lower than seen a month ago, when a refiner could expect to pay up to $25/bbl over the benchmark WTI crude price.
At the close of the Tuesday, June 28, NYMEX session, light sweet crude futures ended the day at $92.89 per barrel, a modest loss of 51 cents/bbl compared to the June 21 settlement at $93.40/bbl.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.