Conditions were described as fairly stable in the U.S. base oils market, with the exception of crude prices, which have declined by close to 20 percent over the month.
The recent drop in crude values have put consumers on guard as they plan future orders and attempt to predict whether base oil prices will remain steady, or lose ground.
Meanwhile, suppliers insist that a few base oil grades – namely the high-viscosity cuts – are still very tight and margins remain thin, creating a counterbalance against downward pricing pressure.
In fact, producers have raised prices in a number of ways in recent weeks, whether by increasing posted prices (as is the case of Flint Hill Resources and Phillips 66), increasing spot values, or eliminating discounts on spot transactions.
It was also heard that a major supplier of Group II base oils may be restricting the barrels of the heavy-vis cuts being sold because of low inventories.
According to sources, the supplier has requested that buyers provide a six-month purchase plan to ensure supply to a majority of contract customers, while still meeting the producer’s own downstream requirements.
The producer was also heard to be looking for a large cargo of Group II oils to supplement its own production, feeding suspicions that the supplier may be initiating a plant shutdown soon.
Sources added that the producer seemed to be having some issues with base oil output, either caused by problems at its larger base oil plant, or by difficulties at a crude tower that was limiting availability of vacuum gasoil for base oil production.
However, there was no producer confirmation about possible production cutbacks, and a number of sources denied having observed any problems with base oil supply from the producer.
On the naphthenic front, demand was deemed steady, although there were indications that requirements may be slipping slightly in August, which is typical for this time of the year, according to sources. Pale oil prices remained largely unchanged, with some downward pressure exerted by declining crude and feedstock prices.
Upstream, West Texas Intermediate futures continued on a downward course, dipping briefly below $47 per barrel on Tuesday and approaching lows seen last March.
According to analysts, the decline has been caused by the same dynamics that made oil tumble from $100 per barrel last summer, with a combination of a massive supply glut in the United States, lukewarm global economic growth and falling crude demand seen as the main culprits.
U.S. oil production had been trimmed after crude oil prices plummeted last June, but production has ramped back up. The U.S. is currently pumping 9.5 million barrels of oil per day – up by a million barrels from a year ago, according to media reports.
WTI settled on the CME/Nymex at $47.98 per barrel on July 28, down $2.38 per barrel from its July 21 settlement of $50.36 per barrel.
Brent crude was trading around $53.30 per barrel on the CME on July 28, down $3.74 per barrel from $57.04 per barrel a week ago.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.