Although U.S. producers have held back from following Chevrons lead in raising posted base oil prices, there is plenty of talk of other measures that may be implemented in order to achieve similar results.
Market sources said that a couple of producers intended to end discounts to a select number of accounts, which effectively would be like lifting prices. A few also planned to discontinue temporary voluntary allowances (TVAs) and the sale of spot volumes at reduced prices.
There has also been talk about the possibility that some suppliers would seek posted price increases, but for a more moderate amount than Chevrons 25 to 30 cent-per-gallon hike. Industry participants pointed out that Chevrons posted prices apply to transactions on the U.S. West Coast and were not representative of business on the Gulf Coast.
Buyers also chimed in, saying that it was somewhat counterproductive for producers to increase prices after having lowered them by a similar amount only six weeks earlier. However, consumers did acknowledge that refiners have been exposed to continuing pressure from high feedstock values and that many have cut back base oil production to sell off their vacuum gas oil (VGO), or to produce more fuel products.
Meanwhile, API Group I and II suppliers reported healthy demand levels and plenty of new orders coming in during the week.
Group I heavy-viscosity grades such as SN500-600 and bright stock have stolen the limelight and availability has therefore tightened. A producer said it had received calls from several Mexican companies looking for these heavy-vis cuts.
Mexican base oil requirements had been somewhat slow in January and February, but have definitely picked up the pace, the source said. There were also reports that running rates at Petroleos Mexicanos (PEMEX) Salamanca base oil plant had improved.
The tightening of Group I supply levels in the U.S. may be partly attributed to the upcoming turnarounds at the base oil facilities of Paulsboro Refining and Calumet.
The turnaround at Paulsboros 11,000 barrels per day Group I plant in New Jersey will start on March 20 and last three weeks. The producer was heard to be abstaining from participating in the spot market.
Calumet is also preparing to take its Shreveport, La., base oil plant off-line from April 28 until mid-May. Calumets Shreveport plant can produce 4,800 b/d of Group I base oil and 7,000 b/d of Group II cuts.
As a result of the growing demand and tightening fundamentals for the heavy-vis cuts, spot prices for the SN500-600 cuts and bright stock have edged up in the last couple of weeks, sources said.
At the same time, the snug conditions noted for the Group II light-vis cuts persist, with participants noting that there are fewer spot cargoes on offer than at the end of February.
The market has quieted down on the naphthenics front, following a flurry of price increases and plant turnarounds.
Calumet, Ergon and Cross Oil raised naphthenic base oil prices by 15 cents per gallon, effective March 14. Nynas was understood to be seeking a similar increase.
San Joaquin lifted prices to select customers by 15-20 cents/gal, effective March 3 and March 17, and removed temporary voluntary allowances (TVAs) and special discounts.
The increases found support in tight market conditions due to a number of shutdowns that have already occurred or will be undertaken in the next few weeks.
Cross Oils 5,000 b/d naphthenic base oil plant in Smackover, Ark., experienced a minor upset on Feb. 5 and will be shut down through late March for the producer to complete repairs, alongside a routine maintenance program.
San Joaquins 8,100 b/d naphthenic base oils unit in Bakersfield, Calif., was idled on Feb. 22 until March 8 during a refinery turnaround, but it has been brought back up and is running at one hundred percent capacity, a company source said. Given low inventory levels, the producer plans to be on allocation through the end of the month.
Calumet has completed a brief turnaround that lasted about one week at its 6,900 b/d naphthenic base oils plant in Princeton, La., and the unit is back up and running, a company source confirmed. The producer is still trying to catch up on paraffinic orders as the plant experienced some output disruptions caused by severe weather in January. As a result, the supplier is not offering any paraffinic product on the spot market.
Upstream, West Texas Intermediate crude futures dropped to the lowest level in five weeks on expectations that U.S. and European Union sanctions against Russia would not cause major oil supply disruptions.
WTI settled on the CME/Nymex at $99.70 per barrel on March 18, down 33 cents from a settlement at $100.03/bbl on March 11.
Brent crude was trading around $106.79 per barrel on the CME, down $1.76 from $108.55/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.