U.S. Base Oil Price Report


U.S. base oil market players were somewhat taken aback when Chevron communicated its intention of increasing API Group II posted prices this week, although the move did not come as a complete surprise, as producers margins have been under pressure for some time.

Chevron will be lifting U.S. West Coast posted prices for its 100R and 220R cuts by 30 cents per gallon, and its 600R cut by 25 cents/gal, effective March 5.

The price move comes just weeks ahead of Chevrons introduction of additional capacity from its new base oil plant in Pascagoula, Miss. The 25,000 barrels per day unit is in the start-up process, and commercial product could be available as early as April, industry sources said.

It was not yet clear whether other suppliers would follow Chevrons lead, but producers on both the paraffinic and naphthenic camps have been equally concerned about squeezed margins, given firm crude oil prices well above $100 per barrel, and feedstock vacuum gas oil values hovering at around $3 per gallon.

Demand on the paraffinic side has been on the slow side, but is starting to perk up. Frigid winter conditions have delayed purchases for a number of buyers, who are just now starting to venture out into the market.

The weather has really impacted demand in February, a paraffinic supplier said, adding that the spring buying season would likely start a few weeks later than usual this year. Demand typically sees a marked uptick in early March, but it would not be surprising if requirements do not improve significantly until the end of the month, sources commented.

The naphthenic segment of the base oils market had already seen some pricing action over the last few weeks, with several turnarounds, healthy demand and high production costs spurring price increases.

A tightening supply/demand balance of the pale oils had allowed a couple of suppliers to implement increases on a select number of accounts. The hikes were between 5 to 25 cents per gallon, depending on the producer and the material, and became effective at the beginning of the month.

This week, Ergon announced that effective March 14, the supplier would move the price of all its naphthenic products upward by 15 cents per gallon. The amount of the adjustment will vary based on the viscosity and/or removal of temporary voluntary allowances (TVAs), the producer said.

Cross Oil will also raise prices across the board by 15 cents/gal, effective March 14.

Nynas plans to lift its prices by a similar amount next week as well.

Calumet is understood to be reviewing the news of the recent price moves and is expected to make a decision later this week.

Supply of the naphthenic oils has been drastically reduced by an unexpected outage, together with scheduled turnarounds in the February-March timeframe.

Cross Oil said in a statement that its 5,000 barrels per day naphthenic base oil plant in Smackover, Ark., experienced a minor upset on Feb. 5 that requires some repair and downtime. The damage was in an area of the plant scheduled for equipment upgrades in our March 2014 turnaround, the company said. Due to operational issues, it was decided to accelerate the timing of our planned turnaround immediately. Therefore, the Smackover refinery will be shut down through late March.

San Joaquin and Calumet have scheduled brief turnarounds at their naphthenic base oil plants. San Joaquins 8,100 b/d unit in Bakersfield, Calif., was taken off-line on Feb. 22 for approximately ten days during a refinery turnaround, and although the shutdown is expected to have minimal impact on pale oil inventory and production, the producer is currently on allocation.

Calumet will also complete a one-week maintenance program at its 6,900 b/d naphthenic base oils plant in Princeton, La. in mid-March, but the unit is likely to undergo a more detailed and extensive turnaround in late summer or early fall. Calumet was understood to be tight on product because of weather-related output interruptions earlier in the year.

On the paraffinic front, supply appears to be better balanced against demand, although some light-vis cuts are less readily available than a month ago.

While there are fewer turnarounds scheduled than on the naphthenic side, suppliers said that production of paraffinic base oils may be curtailed in favor of fuel products, which yield better returns.

Additionally, Paulsboro will take its 11,000 b/d Group I plant in Paulsboro, N.J., off-line for maintenance on March 20 for three weeks, the producer confirmed. Since the supplier has been running its plant at full rates and demand has been lower than expected, no problems were anticipated in terms of covering requirements. However, market sources noted that the supplier was not participating in the spot market at the moment.

Looking ahead into April, Calumet plans to start a maintenance shutdown at its Shreveport, La., base oil plant on April 28, which should last until mid-May. Calumets Shreveport plant has a capacity of 4,800 b/d of Group I base oil and 7,000 b/d of Group II cuts.

Upstream, West Texas Intermediate crude futures retreated for the first time in three days on Tuesday, March 4, as supply concerns over tensions between Russia and Ukraine eased slightly.

WTI settled on the CME/Nymex at $103.33 per barrel on March 4, up $1.50 from a settlement at $101.83/bbl on Feb. 25.

Brent crude was trading around $109.30 per barrel on the CME, down 21 cents from $109.51/bbl a week ago.

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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