Conditions were largely described as stable in the U.S. base oils market, although there are early intimations that demand is starting to lose vigor with the arrival of the balmy summer season.
While a slight decline in activity is typical for this time of the year, some players expected conditions to remain fairly favorable for another four months, before the more pronounced slowdown of the year-end holidays hits the market.
Recent price increases in the API Group I and II segments have not been accompanied by further revisions, and no initiatives have surfaced in the Group II+ and Group III sectors.
Participants were keeping an anxious eye on crude oil prices, as the situation has turned very volatile and values dipped significantly over the week on the back of the Greek financial crisis, China’s stock market fluctuations, and the potential for more supply from Iran.
West Texas Intermediate futures plummeted on Monday, falling by more than 7 percent to levels near $50 per barrel. Just a few weeks ago, WTI was hovering above $61 per barrel.
The price of WTI on the CME/Nymex settled at $52.33 per barrel on July 7, down $7.14 per barrel from its June 30 settlement of $59.47 per barrel.
Brent crude was trading around $56.85 per barrel on the CME on July 7, down $6.74 per barrel from $63.59 per barrel a week ago.
One factor that most participants expressed concern about for the second half of the year is the potential lengthening of supply. Not only does demand typically start to decline, but additional product from the expanded ExxonMobil plant in Baytown, Texas, is expected to become more evident in coming months.
Most sources said that one of the big questions on everyone’s mind was how many of the additional barrels would be destined to ExxonMobil’s downstream operations (displacing product currently supplied by other producers), and how much would be going into the merchant market. “Either way, room will need to be made for the extra gallons,” a source commented.
A few participants expected to see a replay of last year’s scenario after the inception of added product from the new Chevron plant in Pascagoula, Miss., when base oil prices started to lose ground and a number of consecutive decreases were applied to postings, as well as to spot values.
However, players were quick to point out that the introduction of new base oil barrels also coincided with the dramatic collapse of crude oil prices – a scenario that is not likely to replay itself in the next few months, according to analysts.
On the naphthenics base oils side, only one producer – Cross Oil – lifted prices of its heavy oils in June. While other suppliers had been mulling possible price adjustments, it was generally understood that fundamentals were steady, and there was no need to “rock the boat” by pursuing price adjustments, a source said.
Base oil rerefiners also agreed that requirements had been moving at a constant pace, and prices had been unchanged for the past three months.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.