U.S. Base Oil Price Report


While the U.S. base oil market has fallen into the typical year-end slumber, underneath the fairly quiet surface there is plenty of action as suppliers prepare for the changing conditions expected to shape the market in the coming year.

With the prospect of additional API Group II capacity coming on stream in the first quarter of 2014 from the new Chevron facility in Pascagoula, Miss., there have naturally been some positioning moves by suppliers eager to protect market share.

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While no revisions have been conducted on posted prices, spot numbers have seen reductions, both as a result of producers need to reduce inventories at the end of the year, and to shore up current positions in the face of the extra supply expected to hit the market early next year. Some Group II spot transactions have taken place at 10 to 15 cents per gallon off of posted prices, and up to 20 cents/gal for large volume deals, according to sources.

However, Group II is not the only segment that has been affected by mounting supply and slowing demand, which appear to be trademarks of the fourth quarter every year.

Group I spot prices have also seen some softening, with numbers edging down an average of 5-10 cents/gal, and up to 15 cents/gal in some cases, over the last couple of months. Low viscosity grades were mentioned at around $3.10-$3.20/gal, heavy-vis grades such as SN500-600 at around $3.40-$3.50/gal, and bright stock at $3.80-$3.90/gal, although some deals were heard at slightly higher levels near $4.00/gal, according to sources.

Some Group I and II suppliers resorted to shipping cargoes overseas during the fourth quarter to manage stock levels, with cargoes moving at 30 cents/gal to 40 cents/gal below the domestic market for large export movements, market participants said.

All of these movements have helped bring inventories more in line with supply levels, and the market in general appeared to have stabilized, buyers and sellers commented.

Furthermore, with some turnarounds expected to take place in the first half of the year, it was necessary for some producers to start limiting spot sales in order to secure enough product to meet contractual obligations in the near future.

Suppliers emphasized that term cargoes shipping early next year are not enjoying the same discounts observed in November and December, because demand is expected to pick up in January, as buyers will have run down inventories and will come back to place fresh orders.

Meanwhile, the naphthenic sector has seen few price fluctuations, with demand described as steady against adequate availability. No production issues were reported within this segment of the market.

San Joaquin was anticipated to conduct a routine turnaround at its Bakersfield, Calif., plant in March 2014. However, the supplier will build inventories to cover for the pale oil supply shortfall during the turnaround, sources said.

On the paraffinic side, Motiva will be taking one of its three Group II trains in Port Arthur, Texas, off line for six weeks in January/February 2014, and Paulsboro was also expected to perform some maintenance work on its Group I plant in Paulsboro, New Jersey, in the first quarter, market sources said, although there was no company confirmation about these turnaround schedules.

Upstream, West Texas Intermediate (WTI) crude futures were on an upward streak on predictions ahead of a government report that crude stockpiles had dropped last week for the first time since September.

WTI settled on the CME/Nymex at $96.04 per barrel on Tuesday, Dec. 3, up $2.36 from last Tuesdays settlement at $93.68/bbl.

Brent crude was trading at around $112.62 per barrel late yesterday on the CME, up $1.74 from $110.88 a week ago.

LLS (Light Louisiana Sweet) was trading at a premium to WTI of around $4/bbl on Dec. 2, compared with $3.45/bbl on Nov. 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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