U.S. Base Oil Price Report

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The U.S. base oil market remained quiet, following several weeks of limited fresh activity spotted both in the domestic and export arenas. Sources admit that the holiday season in full swing in Europe has helped to hush business on this side of the pond.

Although there has been no evidence to date of an official notice to its customers, a handful of sources anticipate that Chevron will eventually step out with a sales allocation plan for base oil following the Aug. 6 fire and subsequent disruption at its Richmond, Calif., refinery.

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Market observers suggest that perhaps one reason why Chevron has not yet been compelled to operate under a sales allocation is because the producer is still meeting all contractual obligations without delay. Several contract consumers of the supplier have said that there has been no interruption in scheduled deliveries so far, and since the plant disruption earlier this month. Furthermore, there have been situations whereby Chevron has offered additional volumes, they note.

Most buyers, however, do not expect this activity to continue for much longer before the West Coast refiner would have to issue a sales restriction given that the impaired crude unit could be offline for a number of months, according to various industry experts. Chevron has yet to comment on the situation, according to direct consumers.

Meanwhile, the market now waits and anticipates what could be forthcoming in terms of price activity. Demand is expected to pick up in the coming weeks, and that could help stabilize prices, a few observers suspect.

This week, crude future values have been flirting with the $100 per barrel territory, and oil experts say that prices could continue to ascend toward the $110/bbl mark. (If so, these are levels not seen since the first week of May.) However, if base oil demand underperforms in September, then it is a coin toss as to what may happen with posted prices. Sources added that hydrocarbon solvent and some chemical prices are moving higher, and that these increases are usually passed to the lube market.

It appears that overall market conditions are not completely dreadful as buying interest remains fairly healthy in the naphthenic sector. Orders are steady for most pale oils, and prices are holding firm in spite of some buyers trying to get discounts. Conversely, in the paraffinic arena there are noises of prices being offered well below postings. In some situations, it was rumored that API Group II light neutrals could be found steeply discounted at circa $3.50 to $3.55/gal.

Export activity remains thin as shaky demand continues in a number of offshore destinations. It is understood that in addition to less movement toward Europe, there is also less deep-sea movement to Asia and Australia. Shipments meant for some of these destinations, are now either being absorbed in the domestic arena and/or are heading for the Mexican and South American markets.

At the close of the Tuesday, Aug. 21, CME/Nymex session, front month light sweet crude oil futures ended at $96.68/barrel, up $3.25 /bbl from last weeks settlement at $93.43.

Brent Crude was trading at $114.70/bbl at the end of the day yesterday, marginally higher by 62 cents/bbl from its week-ago level of $114.08. LLS (Light Louisiana Sweet) crude was trading at a premium of about $16.55/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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