The summer buying season is in full swing and base oil orders are coming in steadily, but U.S. producers have started to look ahead at the arrival of fall with a certain degree of uneasiness.
They see demand declining when the summer season draws to an end, as additional capacity from the new Chevron base oil plant in Pascagoula, Miss., is expected to be introduced into the market.
Sources believe that Chevrons addition of 25,000 barrels per day of API Group II could exert downward price pressure not only on Group II material, but also on Group I cuts, as the price gap between these two categories is likely to narrow further. Some manufacturers are able to use the higher performance Group II in lieu of Group I in certain applications if the price is competitive, market sources commented.
A number of market players expressed concern that a significant portion of the new Chevron production might be designated for the domestic market, rather than primarily for export, as the producer has previously assured. Speaking to WLOX, a local TV station in Mississippi, about the Pascagoula plant last week, Chevrons Public and Governmental Affairs Manager Alan Sudduth said: “The base oil will go from here primarily to Latin America, the U.S. east coast area and Europe.
Whether this comment reflects a change in the companys plans for placing the new capacity is not clear. In previous statements, Chevron said most new production would be destined to Europe, Latin America and Africa. The Pascagoula plant is up and running, and some cuts are expected to come to the market within the next few weeks.
Another factor that may impact the U.S. supply and demand balance in the fall is the restart of the 22,200 b/d Excel Paralubes Group II base oil unit in Westlake, La., following an extended turnaround. The plant is expected to be taken offline for approximately 58 days on June 25 and is likely to be brought back on stream in late August, around the time that requirements could start to slow down.
For the time being, though, the base oil market appears to be fairly tight, with spot availability for certain grades said to be minimal. U.S. buyers and producers have also started to build inventories to prepare for any potential production issues during the hurricane season, which runs from June through November 30.
In production news, Calumet has discontinued its Group I 700 viscosity paraffinic oil and replaced it with a Group I 600 vis as of June 19. The conversion from a Group I 700 vis to a 600 vis is expected to increase yields on this particular grade and allow the company to produce a more consistent quality product. The posted price for the new 600 cut is $4.75/gal FOB Shreveport as noted in the price table below.
It was also heard that Motivas base oil facilities in Port Arthur, Texas, are running well after experiencing some production hiccups linked to problems in one of the companys crude towers.
In other regions, Brazilian producer Petrobras has increased the price of its Group I base oils by around two percent due to rising production costs, but the official price list was not expected to be communicated to customers until the last week of June, sources said.
Upstream, West Texas Intermediate crude futures were hovering close to nine-month highs, as the violence in Iraq continues and the Islamic State in Iraq and the Levant (ISIS) insurgents have occupied some of the countrys main refineries.
WTI settled on the CME/Nymex at $106.03 per barrel on June 24, down 33 cents from a settlement at $106.36/bbl on June 17.
Brent crude was trading around $114.46 per barrel on the CME, up $1.01 from $113.45/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.