Naphthenic prices are dropping. Ergon, the largest producer, alerted its customers of an adjustment effective today. Sources surmise that other producers will likely follow, now that crude values have fallen considerably over the past few months. Still, market fundamentals are viewed as healthy with fairly tight availability against reasonably stable demand.
Ergon has notified customers of price decreases of up to 18 cents per gallon, based on product, on naphthenic specialty oils. The decrease is effective today, Sept. 28.
Once the Ergon news began to filter through the market this week, buyers speculated that other producers would jump on the band wagon and announce lower prices in the coming days.
Players attributed the naphthenic price adjustment to a slight build in stocks alongside steady demand, combined with lower crude values over the past month.
Suppliers say day-to-day activity picked up steam in September, with orders stronger than August, and October appears to be even more promising. But whether the base oils market will end the year on a high note or low one is unknown at this juncture.
API Group II and III supplies remain particularly tight. Buyers said they have encountered some difficulties in attaining all quantities needed so far this year. They added that apart from the apparent disparity in avails, they are largely satisfied with volumes currently being delivered.
Several participants pointed out that the shortage of Group III premium base oils could be lessened later this year and early next year, once the Bapco-Neste and Shell-Qatar Petroleum Group III plants in the Middle East have reach full operating potential.
The extent to which impending imported volumes will satisfy domestic U.S. buyers growing appetite for Group III is still unclear. It is generally understood that Shells gas-to-liquids volumes will not be offered into the merchant market, but rather will be utilized internally, at least initially. However, to some degree Shells GTL base stocks will replace, and thus free up, Group III material from other sources.
Volatility in the stock markets along with flip-flopping benchmark crude futures over the past week were cited as the cause for a slower week in the base oils arena. Most players are trying to figure out whether or not the economic backdrop is improving.
At the close of the Tuesday, Sept. 27, CME/NYMEX session, front month light sweet crude oil futures ended the day at $84.25 per barrel, a loss of $2.64 from the week earlier settlement at $86.89/bbl.
Brent crude ended the day at $106.75/bbl, shedding $3.96 compared to the week earlier settlement at $110.71/bbl. LLS (Light Louisiana Sweet) crude had a $26/bbl premium to WTI on Tuesday.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.