U.S. Base Oil Price Report


U.S. base oil producers hold high hopes that market conditions will improve in late February when buying activity typically starts to pick up before the busy spring production season, but many expressed dismay at the high production costs and lean margins.

Its hard to believe you can buy base oil at the same price as feedstock costs, a market participant said, referring to the fact that some base oil cuts were selling at around $3.00 per gallon, while feedstock vacuum gas oil was also hovering near the $3.00/gal mark.

The situation has been made more poignant by the recent posted price decreases that became widespread in the base oils market during January, sources emphasized.

A majority of producers revised postings down by 10 cents per gallon to 30 cents/gal, depending on the supplier and the grade, with implementation dates falling between Jan. 10 and Jan. 29. The widest spread of adjustments was seen within the API Group II segment, with suppliers dropping prices between 13 cents/gal to 30 cents/gal.

The price decreases motivated some buyers to step into the market, and a number of sellers noticed a pick-up in orders during the last couple of weeks. Aside from the incentive offered by the decreases, buyers probably needed to replenish stocks as many had finished the year with minimum inventory on hand, sellers explained.

Other suppliers, however, said that the lower prices had not caused an immediate surge in requirements and that demand in February was likely to be fairly steady from January levels.

A fairly positive effect of the revised posted prices was that it was expected to halt the decline in spot pricing, as there was no need for suppliers to continue making adjustments on spot levels to promote sales, sources said.

Spot volumes have recently shrunk, sources explained, with supply of the light-viscosity base oils having tightened considerably since the beginning of the year. Group I suppliers were heard to have no extra light or mid-vis oils available. This situation was likely the result of producers having adjusted output to meet customer demand only, sources added.

This tightening could also be partly the result of recent turnarounds or planned maintenance programs during the first quarter.

Motiva took the smallest of its three base oil trains off-line at Port Arthur, Texas, in early January. Market sources said that the producer had completed the planned catalyst change and was expected to begin the restart process of the facility on Feb. 1. The turnaround was heard to have only affected production of light-viscosity grades.

Calumet was also expected to complete a 20 day turnaround at its Shreveport plants hydrotreater starting in the first week of March. The turnaround would affect production of its 325 and 700 cuts only. Calumet plans to build sufficient inventory to meet its contractual obligations, despite the production shortfall. The Shreveport plant has 4,800 barrels per day of Group I, 7,000 b/d of Group II and 100 b/d of naphthenic base oil capacity.

Paulsboro was also expected to perform some maintenance work on its Group I plant in Paulsboro, N.J., towards the end of the first quarter, market sources said, although there was no company confirmation about its turnaround schedule.

On the naphthenic side, prices remained stable, with no plans for revisions in sight, according to suppliers. A majority of producers polled said that they expected prices to hold through February and to be reevaluated in March.

Demand for pale oils was said to be healthy and well-balanced against supply.

San Joaquin will have a minor turnaround on its crude units from Feb. 22 until March 1, but the producers hydrotreaters will remain on-line and no outages were expected.

Upstream, West Texas Intermediate (WTI) crude futures were trading near the lowest level in a week on expectations that an Energy Information Administration report would reveal that U.S. crude inventories were mounting.

WTI settled on the CME/Nymex at $91.19 per barrel on Tuesday, Feb. 4, down 22 cents from a settlement at $97.41/bbl on Jan. 28. Brent crude was trading around $105.78 per barrel on the CME, down $1.63 from $107.41/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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