U.S. Base Oil Price Report

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The U.S. base oils market proceeded at a steady pace this week, with fundamentals characterized as largely stable. Flint Hills Resources had surprised the market last week by announcing that it would lower postings for its Group II 70, 75, 100 and 230 vis grades by 10 cents/gal, effective May 8, with the exception of the 600 posting, which remained unchanged at $4.47/gal.

The small ripples caused by the unexpected announcement have mostly faded, with no other movements initiated by other suppliers. A majority of participants agreed that there were no major factors pulling prices in either direction, and speculated that the Flint Hills adjustment had been mostly prompted by the suppliers desire to bring its posted prices more in line with general market values.

Base oils demand remains steady and close to estimates, although a number of suppliers said that May orders had improved over April and that they expected the trend to continue into June. The heavier cuts are still the most sought-after, and they are therefore in a tighter position than the lighter grades.

The naphthenic segment is also enjoying a period of price stability, with producers describing requirements as healthy. Suppliers said they did not see a need to rock the boat by attempting to change prices, but admitted that a revision would be considered if demand picks up significantly and the market tightens up.

Most naphthenic and paraffinic facilities are running at optimum rates, and as a result, there is no scarcity of product noted. The restart process of the crude unit at Chevrons Richmond, Calif., refinery, is proceeding as planned, and the company is starting to build some inventory, following an extended shutdown caused by a fire in August 2012.

Export activity has been subdued because of thin buying appetite in other regions and a lack of arbitrage opportunities, with only regular shipments to long-term customers or intra-company movements mentioned.

In related news, benchmark U.S. crude oil futures rose during the electronic trading session on Tuesday, May 14 on the back of a softening U.S. dollar. Crude oil prices had lost some ground on Monday on reports that oil production from the Organization of the Petroleum Exporting Countries (OPEC) had increased by 250,000 barrels per day in April from the previous month to 30.5 million b/d.

At the close of the Tuesday, May 14, CME/Nymex session, front month light sweet crude oil futures ended the day at $94.21 per barrel, a drop of $1.41/bbl from last weeks settlement at $95.62/bbl.

Brent Crude was trading at $102.60/bbl at the end of the day yesterday, down $1.80/bbl from its week-ago level of $104.40/bbl.

LLS (Light Louisiana Sweet) crude was trading at a premium of around $8.90/bbl to WTI (West Texas Intermediate) crude on May 14, reflecting the lowest differential since January 2012.

Vacuum gas oil continues to draw a premium over WTI, although somewhat softer than the past few months. Low-sulfur VGO differentials are now hovering at around $16/bbl over WTI. For much of April, VGO premiums averaged in the mid to high $20s/bbl over WTI.

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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