U.S. base oil demand continues to strengthen while availability wanes. Producers inventory positions are described as thin, with customer orders meeting or surpassing expectations.
Suppliers say that buying interest continues to build and that March sales are significantly improved over January/February volumes. But they warn that some orders could face delays given market dynamics.
A Calumet spokesman said that due to inclement weather and other unexpected issues encountered in recent weeks, operations at the 11,900 barrel per day Shreveport, La., base oil plant were interrupted on more than one occasion. This caused the refiner difficulties in building stocks ahead of a planned turnaround, which commenced this past weekend. The company source said that any customer orders placed during this time frame will most likely be delayed. The scheduled turnaround is expected to last about two weeks.
Similar situations could prevail at other production facilities that may have experienced operational hiccups caused by severe winter weather conditions in the past month or so, sources noted.
Cross Oil Refinery is presently in its scheduled turnaround, and the 5,000 b/d Smackover, Ark., plant is expected to resume normal operations by next week. The company said that due to sustained healthy customer orders (some of which were pre-shipped), inventories following the start-up will be low.
Meanwhile, base oil suppliers continue to pay careful attention to upstream developments. West Texas Intermediate benchmark crude values have traded in a spread of $85 to $90 per barrel for the past several weeks. Some energy experts point out that there has been a serious disconnect between WTI and other crudes that are utilized in the U.S. waterborne refineries, for example Light Louisiana Sweet, Heavy Louisiana Sweet (HLS) or foreign Brent-related crudes. These crudes are trading at a significant premium to WTI of $18/bbl to $22/bbl.
As well, vacuum gas oil values have blown out and are at a sizeable premium, around $19 to $23/bbl, to WTI crude numbers, according to sources. These differentials have shot up about $10/bbl in about a week. In many cases, VGO is an essential feedstock, and therefore it is a key factor in the pricing of base oils.
At the close of the Tuesday, Feb. 15, NYMEX session, light sweet crude futures ended the day at $84.32 per barrel, a loss of $3.16 compared to the settlement a week earlier at $87.48/bbl.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.