Concerns about oversupply and competitive activity on the spot front appeared to have been tempered, at least momentarily, as spot supply has tightened and U.S. suppliers have been able to attain more comfortable inventory levels.
Several market participants agreed that spot barrels were drying up and that domestic spot sales, as well as exports, have helped balance the market, despite a seasonal slowdown in domestic demand.
A good number of suppliers were understood to have granted discounts and other incentives to stimulate spot purchases, but posted prices have been kept intact. Most sources did not expect a revision to posted values as margins remain thin, even though crude oil and feedstock costs have dropped from record highs three months ago.
A number of large API Group II cargoes were heard to be moving to Mexico and India. Demand in India has started to pick up, following several weeks of weak requirements due to the monsoon season and a number of local holidays. The export cargoes were heard to have changed hands at attractive prices, sometimes below cost, sources said, but these sales helped tighten up base oils supply in the United States.
During the well-attended American Fuel and Petrochemical Manufacturers (AFPM) International Lubricants and Waxes Meeting in Houston Nov. 14-15, many discussions held on the sidelines of the conference centered on the upcoming start-up of the new Chevron Group II plant in Pascagoula.
Just as the conference was wrapping up, news that a fire had broken out at a furnace in the cracking II area of the Pascagoula refinery hit the market on Friday, Nov. 15.
The fire at the Chevron refinery resulted in one fatality, according to a company statement. The producer has begun the process of investigating the incident and is cooperating with appropriate regulatory agencies, a spokesperson said, adding that Chevrons Pascagoula base oil plant was located in a different section of the refinery and was not impacted by the fire. Chevron is currently operating the refinery at normal capacity and producing finished products, the spokesperson said.
The base oils plant was expected to attain mechanical completion by the end of the year and product was likely to come on-stream in late first quarter of 2014.
Once the Pascagoula plant starts production, producers are concerned that there would be a glut of base oils in the domestic market. Several participants said that it was not only the flow of the product from the new plant that worried them, as Chevron will likely utilize the base stock in its own downstream applications. Chevron has assured that most of its output has been placed and that a large portion of the production will be exported to Latin America, Europe and Africa. What might have a more significant impact is that Chevron currently also purchases base stock from other producers, and these suppliers will have to look for alternative outlets for their products, sources explained.
Two turnarounds in the first quarter were anticipated to help maintain inventories in check. Motiva will be shutting down one of its three Group II trains for six weeks in January/February 2014, and Paulsboro was also expected to perform some maintenance work on its Group I plant in the first quarter, according to sources, although there was no company confirmation about the turnaround schedule.
Upstream, West Texas Intermediate (WTI) crude futures declined on prospects that the U.S. Central Bank would start to reduce economic stimulus and slow bond purchases. Crude stockpiles have risen as well.
WTI settled on the CME/Nymex at $93.34 per barrel on Tuesday, Nov. 19, up 30 cents from last Tuesdays settlement at $93.04/bbl.
Brent crude was trading at around $106.92 per barrel late yesterday on the CME, up $1.11 from $105.81 a week ago.
LLS (Light Louisiana Sweet) was trading at a premium to WTI of around $2.70/bbl on Nov. 18, compared with $4/bbl on Nov. 11.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.