U.S. Base Oil Price Report

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The U.S. base oil market awakened after the 4th of July holiday to find that little had changed during the week, with stable pricing and generally steady demand driving business. Several participants agreed with a suppliers sentiment that the market is so quiet it is scary, although this fact was viewed as largely positive because it has allowed suppliers to maintain postings on a steady course over the last couple of months. The stable conditions have also been beneficial to buyers, who have been able to make better projections about short-term purchases.

Not only have posted prices remained steady, but spot deals have also seen few fluctuations in the last several weeks. Although there was still mention of slightly higher discounts of around 40 cents/gal off postings for spot transactions involving some of the low-vis grades within the API Group II segment, suppliers in general see little justification to offer more competitive numbers, with discounts mostly hovering around 8 to 10 percent off posted prices, depending on volumes.

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At the same time, producers were watching feedstock prices closely as unrest in Egypt and a drawdown in U.S. crude oil supplies have sent crude and derivatives prices to fourteen-month highs. Base oil margins have not been particularly strong, and further upward movements on the feedstock side could make producers revise their pricing structure, sources said.

The base oil supply/demand ratio continues to be fairly balanced, particularly for the high-vis paraffinic cuts, but some of the light-vis cuts have been more readily available. In the naphthenic sector, demand for light vis 60 pale oil, mostly for use in transformer oil, has been particularly healthy, according to sources.

On the Group I side, a thirty-day turnaround at the 6,000 barrels per day Pemex refinery in Salamanca, Mexico, could call for some U.S. volumes to fill product gaps, but no specific export deals have been heard in connection with the outage. The turnaround in Mexico started in early July.

In other Latin American markets, it was heard that Brazilian producer Petroleo Brasileiro S.A. (Petrobras), who regularly communicates its domestic posted prices to the market, is likely to increase Group I base oil prices by five to eight percent in July, according to market sources. Buyers and sellers in Brazil routinely modify their business strategies according to Petrobras pricing structure. Demand has been fairly steady in Brazil, with the winter season just kicking off in the south of the country.

In mid-June, Petrobras and China Petroleum and Chemical Corp. (Sinopec) signed a letter of intent for a study to establish a possible joint venture to build the Premium 1 refinery in the northeastern Brazilian state of Maranhao. Petrobras had also announced a similar joint-venture project with South Korea’s GS Energy Corp. earlier that month, which would involve a feasibility study for construction of the Premium 2 refinery near Fortaleza. By building more refineries, Petrobras hopes to increase its refining capacity by 50 percent by 2020 and reduce the countrys dependence on gasoline and diesel imports.

Upstream, WTI (West Texas Intermediate) crude jumped to the highest level in 14 months on continued civil and political turmoil in Egypt and speculation that data to be released on Wednesday would show a further drawdown in U.S. stockpiles.

WTI crude settled on the CME/Nymex on Tuesday, July 9, at $103.53 per barrel, up $3.93/bbl from last weeks settlement at $99.60/bbl.

Brent for August delivery settled at $107.60/bbl on the London-based ICE Futures Europe exchange, up $3.60/bbl from $104/bbl a week ago.

LLS (Light Louisiana Sweet) crude was trading at a premium to WTI of $5.85/bbl on July 8, the lowest level since Jan. 3, 2011, according to a Bloomberg report.

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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