U.S. Base Oil Price Report


U.S. base oil demand continues at a healthy clip, keeping up with the trend established about a month ago. Overall supply availability has tightened further in the past week or so, largely due to the recent production mishap at Motivas Port Arthur, Texas, facility. The producer has since instituted a sales allocation program.

Following an unscheduled plant disruption at one of the processing units on Saturday, May 12, Motiva has been faced with supply challenges. The company has alerted its customers that it initiated a 50 percent sales allocation.

In a letter to its customers, Motiva said that the outage resulted in a shortage of its API Group II Star 6 220 vis grade. Effective Monday, May 21, Motiva began to allocate Star 6 to its customers at 50 percent of historical purchases. The company will enforce the allocation program until the production issues have been rectified.

Meanwhile, Motiva is also in the early days of preparing for a scheduled shutdown on one of its three lube trains, to commence in mid-July. The turnaround should last for approximately three to four weeks.

Demand for most paraffinic and naphthenic grades has gained momentum, particularly the past month. Sources say that buying interest has been good much of the year, but it seems that demand took a serious upturn in April, and continues to improve weekly.

This has lead to a number of base stock cuts becoming much tighter than suppliers had expected. The recent issues at Motiva could cause an even tighter supply scenario to emerge for Group II base oils. A similar situation is evident on the naphthenic side as well, since there have been several planned outages in recent months and overall availability is limited.

Despite a one week delay, Cross Oil had a successful start-up late last week at its Smackover, Ark., refinery. During the turnaround, customers have been supplied from existing inventories. Sources said some shipments may be delayed going forward, until improved stock positions are regained.

There was limited market chatter this week concerning the continued decline of feedstock costs versus current posted price levels. Some players do not expect producers to step out with a decrease given the robust demand against limited availability. A few others, however, are anticipating lower postings to emerge in the coming weeks, particularly if crude oil values continue to tumble.

Despite crude prices dipping in the past several weeks, vacuum gas oil differentials remain steep, according to energy experts. As recently as Tuesday, low sulfur VGO was pulling a premium of $29.75 to $31 per barrel over WTI. Medium and high sulfur VGO differentials were running slightly less at around $25.5 to $28.5/bbl over WTI.

At the close of the Tuesday, May 22, CME/Nymex session, front month light sweet crude oil futures ended the day at $91.66 per barrel, a loss of $2.32/bbl from last weeks settlement at $93.98.

Brent crude was trading at $108.22/bbl at the end of the day yesterday, slipping another $4.08/bbl from its week-ago level at $112.30 LLS (Light Louisiana Sweet) crude was trading at a premium of about $13.5/bbl 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.

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