U.S. Base Oil Price Report


U.S. base oil market participants have started to focus on March business as the month of February comes to an end, harboring mixed expectations as far as pricing is concerned.

March typically marks the start of the busy spring buying season and suppliers have historically been able to push prices up as demand flourishes and supply tightens. The seasonal increase timeframe is always mid to late March for April purchases, a source asserted.

However, paraffinic base oil orders have so far been slow compared to the same time a year ago, but this has largely been attributed to adverse weather conditions affecting a large swath of U.S. territory. As the harsh winter conditions make their retreat, buyers have stepped back into the market, with suppliers noting an increased number of orders coming in over the last few days.

The sudden pick-up in requirements could also be the result of strategic movements by consumers trying to beat a potential price increase, sources remarked.

While the improved buying appetite is welcome news to producers, thin margins continue to weigh heavily on their minds. With feedstock vacuum gas oil (VGO) hovering in the vicinity of $3.00 per gallon, and some base stock cuts selling at similar levels, it is difficult for producers to justify base oil output over fuel products.

A producer said that its attempts to sell light-vis grades at $3.15/gal FOB U.S. Gulf had been unsuccessful because traders indications were below $3.00/gal. A couple of suppliers might be willing to sell at those levels, sources said, but this situation cannot be sustained for long.

Aside from high production costs, tightening availability might offer support to an upward price revision, sources said. An API Group I producer said it had received several inquiries for heavy-vis cuts and bright stock, but it was unable to offer any extra volumes.

On the other hand, a large buyer said that it had not seen any indication of tightness of the mid- and heavy-vis grades.

Sources said that a Group II supplier had communicated to customers that due to weather-related propane shortages in the state of Louisiana, the supply of a number of products had been curtailed, including base oils, and as a result, the seller was unable to offer additional volumes aside from those previously agreed on. The producer ostensibly also raised its FOB price indications, sources added.

A second Group II supplier also confirmed that it was only selling to contract customers, adding: We are tight and not playing in the spot arena.

A few of suppliers are also abstaining from participating in the spot market as they are building inventories to meet demand during scheduled turnarounds, sources commented.

On the naphthenic front, the snug supply and high feedstock costs have led to allocations and price increases for a number of customers as well.

San Joaquin is conducting a minor turnaround on its crude units from Feb. 22 until March 7, and the producers hydrotreaters in Bakersfield, Calif., will be down for a few days, with minimal impact expected on pale oil inventory or production. However, the producer is on allocation just in case of unexpected problems. Given the current supply situation, coupled with steep production costs, San Joaquin is removing temporary voluntary allowances (TVAs) to a number of customers, effective March 3, and is increasing prices by 10 to 25 cents per gallon. The producer underscored that this would not be an across-the-board increase.

Calumet will also have a turnaround at its 6,900 bbl/day naphthenic base oils plant in Princeton, La. in mid-March, but the unit will only be out for one week and may undergo a more extensive turnaround in late summer or early fall. The producer is building inventories and was heard to be tight on product. Buyer sources said that Calumet had raised pale oil prices into a number of accounts by 5 to 25 cents/gal, effective March 1.

There will be a number of turnarounds on the paraffinic side during the March-May timeframe as well.

Calumet will conduct a turnaround at its Shreveport, La., paraffinic base oil plant, starting on April 28 through mid-May. The shutdown had originally been scheduled for March, but was postponed as the producer had been unable to pad its inventories sufficiently to cover its contractual obligations during a turnaround next month. Calumets Shreveport plant has a capacity of 4,800 barrels per day of Group I base oil and 7,000 bbl/day of Group II cuts.

Paulsboro was also expected to perform some maintenance work on its 11,000 bbl/day Group I plant in Paulsboro, N.J., towards the end of the first quarter, market sources said, although no company confirmation could be obtained.

While the market tightening due to the turnarounds and production cutbacks might offer support to a potential price hike for paraffinic base oils, the introduction of additional Group II product from the new Chevron plant could eclipse some of the brighter increase prospects for suppliers.

Chevron has not provided an official start-up date for its new 25,000 barrels per day Pascagoula, Miss., base oil plant, but market sources expected light and mid-vis cuts to be available in April. The additional product was expected to exert downward pressure on domestic Group II pricing.

Upstream, West Texas Intermediate crude futures were on a downward trek on expectations that the weekly Energy Information Administration (EIA) report would show a built in U.S. crude stockpiles.

WTI settled on the CME/Nymex at $101.83 per barrel on Tuesday, Feb. 25, down 60 cents from a settlement at $102.43/bbl on Feb. 18.

Brent crude was trading around $109.51 per barrel on the CME, down 95 cents from $110.46/bbl a week ago.

LLS (Light Louisiana Sweet) for March delivery was trading at a premium to WTI of around $5.50/bbl on Feb. 25, compared with $6.15/bbl on Feb. 7.

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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