U.S. Base Oil Price Report

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While no major factors were swaying prices in the U.S. base oils market, new API Group II capacity coming on stream in the second half of the year could be a game changer, sources said.

Market players said that a fairly balanced supply/demand situation continued to support stable prices in the U.S., but this balance was likely to be upset once the new capacity at Chevrons 25,000 barrels/day Group II plant in Pascagoula, Mississippi, comes on stream. While the exact impact of the added supply is difficult to assess, prices are expected to see downward pressure, sources said.

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Meanwhile, suppliers reported generally healthy demand this week, despite the long Memorial Day weekend, with requirements for the heavy cuts still reported as robust and in tighter supply than the lighter grades. A producer said it had received additional inquiries from potential new customers during the last few days, which could be a sign that buyers are either looking for competitive offers, or that some suppliers are sold out and their customers have therefore been forced to look for product elsewhere.

Demand was expected to remain strong moving into June, but could be affected by the summer doldrums typically seen in July. Strong spring sales in the automotive and marine segment have resulted in healthy demand for lubes, sources said, but it was difficult to predict whether the trend would continue. The summer is also a time when fuel prices typically move up and some refiners shift production to the manufacture of more transportation fuels and less base oil. The base oil market tightness has allowed suppliers to maintain fairly firm price ideas and has reduced the need to grant deep discounts on spot transactions.

Paraffinic price ideas (incorporating both spot offers and contract prices) are currently discussed in a range of $3.22/gal to $3.32/gal FOB for API Group I light vis cuts. Mid vis base oils are heard at around $3.40/gal to $3.58/gal FOB. Price indications for heavy vis cuts are pegged within a range of $3.90/gal to $4/gal FOB, with some selling ideas heard at slightly higher levels. Bright stock prices are assessed at $3.95-$4.22/gal, although higher prices have also cropped up on account of tight availability.

Regarding Group II, prices are assessed at similar levels to those in Group I, with light vis cuts quoted at around $3.24-$3.35/gal FOB, mid vis cuts at $3.42-$3.62/gal FOB and heavy vis grades at $4-$4.22/gal FOB. Price ideas may vary depending on the supplier, product and quantities.

In the naphthenic segment, prices are maintaining a steady course, with little pressure to justify price movements in either direction, suppliers said.

Pale oil values are assessed at $3.54-$3.71/gal FOB for 100 to 750 vis cuts and for general purpose applications. The 60 vis cut, used mostly in the manufacture of transformer oil, is heard at around $3.90-$4/gal FOB, with healthy demand noted. Heavy pale oil prices were hovering at similar levels as the transformer oil grade in the high $3s/gal. Specialty pale oils and other niche applications continue to see premiums from 50 cents/gal to $1/gal over mainstream applications.

On the export front, opportunities for business into India are starting to dwindle, as buyers will be reducing its requirements during the monsoon season beginning in June. Group II material of U.S. origin was heard on offer at $905/metric ton FOB, but this could not be verified. Export cargoes ex-Malaysia, Taiwan and Bahrain are also heard to be competing for Indian buying interest.

On the other hand, a U.S. producer said it had started to see increased requirements from Mexico for June/July cargoes, following a fairly quiet period in the Mexican import segment.

In other news, the National Oceanic and Atmospheric Administration (NOAA) predicted that the 2013 Atlantic hurricane season could be extremely active. NOAA released its new hurricane outlook for 2013 and is projecting seven to 11 hurricanes, with possibly three to six of those hurricanes becoming a Category 3 storm or higher. An active hurricane season means that producers along the U.S. Gulf Coast and East Coast will have to implement additional measures to protect their plants from severe storms.

Upstream, at the close of the Tuesday, May 28, CME/Nymex session, front month light sweet crude oil futures ended the day at $95.01 per barrel, shedding $1.15/bbl from last weeks settlement at $96.16/bbl.

Brent Crude was trading at $104.39/bbl at the end of the day yesterday, up 59 cents/bbl from a week ago at $103.80/bbl.

LLS (Light Louisiana Sweet) crude was trading at a premium of around $8.85/bbl to WTI (West Texas Intermediate) crude on May 28.

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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