After a flurry of buying activity following the recently implemented posted price decreases, the U.S. base oil market has fallen into a seasonal slumber.
A majority of suppliers reported that requirements had noticeably perked up during the last two weeks of January and the first week of February, likely spurred by the downward price adjustments, but things appear to have quieted down since then, a market source said.
Some participants noted that a slowdown is not unusual for this time of the year and remained optimistic that buying appetite would regain its strength towards the end of February, when consumers secure more material to prepare for the spring production season.
Given that producers have, in the past, sought price increases once demand starts to improve in the spring, some buyers also try to acquire more product ahead of the seasonal pick-up to beat the potential hikes.
At the moment, most paraffinic supply appears to be balanced against demand, although market players reported that the light-viscosity grades had tightened and there is not much product offered for spot business. The tightening might have ensued in some measure from producers having adjusted output to be able to meet contractual demand, but avoid a large product overhang.
An API Group II supplier was heard to have no excess 110N or 220N available beyond contract volumes. The price reduction is doing exactly what the market wanted. It is cutting back production and driving demand, a market participant commented.
Group I producers also said that bright stock was less readily available than in the last quarter of 2013.
Meanwhile, on the naphthenic side, producers said that demand remained steady and supply adequate to cover the current call for product. No price adjustments have been noted and participants doubted that much would change in the next couple of weeks.
In production, as the time for the expected start-up of the new Chevron Group II base oil unit in Pascagoula draws closer, there is increased talk about the latest developments in relation to the plant.
A company spokesperson stated this week that Chevron expects to reach mechanical completion towards the end of the first quarter, and will then ramp-up production to full capacity during the second quarter.”
Market sources familiar with Chevron’s operations provided a number of details about the start-up process. They said that mechanical completion of the base oil unit has essentially been achieved, although there are always some adjustments that need to be done. Feedstock will be supplied to the plant in late March, and the producer will start manufacturing 110N cut to sulfide the catalyst, followed by production of the 220N and 600N cuts. According to sources, all grades will be available by May, with some light and mid-vis possibly coming to the market in April.
Upstream, West Texas Intermediate crude futures were trading near the highest level in six weeks on speculation that U.S. distillate stockpiles had dropped considerably because of heightened demand for heating fuels.
WTI settled on the CME/Nymex at $99.94 per barrel on Tuesday, Feb. 11, up $8.75 from a settlement at $91.19/bbl on Feb. 4.
Brent crude was trading around $108.68 per barrel on the CME, up $2.90 from $105.78/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.