U.S. Base Oil Price Report


U.S. base oil producers were somewhat relieved that there were no vast quantities of surplus product weighing on the domestic supply system, as many suppliers had been diligent about reducing inventories since the beginning of the quarter.

Some sellers had resorted to lowering spot prices and offering temporary voluntary allowances (TVAs) to large domestic buyers in order to induce an increase in product movement ahead of the year-end.

While this is a fairly common practice during the last quarter of the year, when demand typically slows down, some participants lamented that it is generally difficult to bring prices back up once they have been taken down, particularly in view of a possible oversupply situation next year. This applied mainly to spot prices, as posted prices have not seen a revision since August.

Several U.S. cargoes were shipped overseas at very competitive prices, sometimes 30-40 cents/gal below prevailing domestic prices for large-volume transactions, market sources said. Buying interest from Mexico and India had been fairly healthy, while there was also appetite from Brazil, sources noted.

A number of suppliers said that they were still receiving inquiries for late December and January cargoes, but they were unable to supply much beyond already contracted volumes as the extra availability had diminished.

Others have limited their participation in the spot market as they are starting to build inventories ahead of plant turnarounds in the first quarter.

The naphthenic sector was fairly uneventful, with steady demand and favorable production rates allowing prices to remain stable over the last three months.

As the end of the year quickly approaches, there has been increased talk about marketing contracts that are due to expire at the end of 2013, such as the one between Nynas and Valero.

Back in 2003, Nynas entered a long-term agreement to purchase all of the naphthenic capacity of Valeros base oil plant in Three Rivers, Texas. As part of the deal, Valero agreed to invest approximately $10 million to upgrade and expand the plant. Nynas cited a need to secure supply for the international market when it signed the agreement.

Nynas has since then marketed Valeros naphthenic products, and it is not yet clear whether the agreement will be renewed at the end of the year. There is industry speculation that Nynas might exit the U.S. market as it has acquired additional plants in Europe since signing the agreement with Valero ten years ago, but neither one of the companies was available for comment.

In production news, Shell has scrapped its plans to build a 140,000- barrel per day gas-to-liquids (GTL) plant in Louisiana, according to a company statement on Dec. 5. The proposed plant did not ever have a base oil component.

Last September, the company had selected the location for the new plant near Baton Rouge, but the company decided that market uncertainties and the cost of the project were precluding the plant from becoming a viable option. Shells CEO Peter Voser stated: We are making tough choices here, focusing our efforts and capital on the most attractive opportunities in our world-wide portfolio to add value for shareholders.

Meanwhile, Sasol will be making a final investment decision about its GTL plant in Louisiana in 2016, with the first phase of the project expected to start in 2019, and the second phase, including a base oils plant with a capacity to produce 9,000 barrels per day of Group III base oils, to commence in 2020, according to a company presentation at the AFPM Meeting in mid November. For more information, see the Nov. 27 Lube Report article on Sasol’s presentation

Upstream, West Texas Intermediate (WTI) crude futures strengthened on expectations that an Energy Information Administration (EIA) report would show U.S. crude inventories declined for a second week.

WTI settled on the CME/Nymex at $98.51 per barrel on Tuesday, Dec. 10, up $2.47 from last Tuesdays settlement at $96.04/bbl.

Brent crude was trading at around $109.38 per barrel late yesterday on the CME, down $3.24 from $112.62 a week ago.

LLS (Light Louisiana Sweet) was trading at a premium to WTI of around $4.60/bbl on Dec. 10, compared with $4/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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