Overall U.S. base oil demand is deemed steady, but remains somewhat below expectations for the fall buying season. Some participants surmise that the ongoing shaky economic outlook is on the forefront of players minds and has thus slowed otherwise seasonal buying activity.
Posted prices in the United States rested unchanged this week, with no fresh price moves initiated since earlier this month. Previously, API Group I producers issued price hikes, but Group II and III suppliers have yet to join in. Some sources have doubts that the more premium base oil providers will follow with price hikes, unless demand picks up to a more robust pace.
Naphthenic prices are holding firm within a wide range of $3.45 to $4 per gallon, according to a few sellers. The price band best describes their average buyers concluded FOB numbers, but as always, there remains some business concluded below and above this price spectrum.
To some market observers, it appears that consumers are not seeking to build up stock positions, but rather attempt working off existing volumes and buy only specific grades when necessary. Sellers, in the meantime, were not overly aggressive in pushing additional base oil toward their contract customers, sources said.
In the latter part of the summer, several suppliers had been seen eagerly seeking fresh spot trade opportunities, but within the past couple of weeks, low-priced offers have been taken off the table, according to buyers.
Meanwhile, it appears that export activity remains thin, as offshore buyers are not willing to accept U.S. suppliers price points. This is not to say that some spot shipments are not being concluded, but details remain hushed. It was also understood that there are regular ongoing shipments of paraffinic and naphthenic finding their way into the Mexican, European and Asian markets.
In related news, according to recent reports from J.D. Power, Edmunds.com and their affiliate LMC Automotive, automotive sales continue to rise in the United States, but sales are off in Europe as they have been in recent years.
In a prepared statement, a spokesperson for Edmunds.com said, Economic uncertainty at home and spillover effects from slowing economies abroad will continue to slow the pace of American economic growth, including car sales.
S&P economists noted that the auto industry has recently withstood a series of crises, including the worst economic slowdown since 1929, an earthquake in Japan and floods in Thailand, and now the Euro-zone debt crisis. The economists went on to say we expect U.S. auto sales in 2012 to rise to their highest level since 2008 as a result of consumers replacing their aging vehicles, as well as better credit availability.
However, the considerable drop off in automobile sales in Europe as well as declines in other manufacturing segments is distressing to the U.S. lubricants market, one domestic player bemoaned. The source added, the slowdown overseas, will eventually have a negative impact on the base oil/finished lubricant streams, even though they are currently holding steady.
At the close of the Tuesday, Sept. 25, CME/Nymex session, front month light sweet crude oil futures ended the day at $91.37/barrel, dropping $3.92/bbl from last weeks settlement at $95.29.
Brent Crude was trading at $110.40/bbl at the end of the day yesterday, down $1.63/bbl from its week-ago level of $112.03. LLS (Light Louisiana Sweet) crude was trading at a premium of about $21/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.