Base oil buyers and sellers are closely watching crude oil futures that have fallen back to six-year lows. Many base oil postings have also been adjusted downward over the past couple weeks.
West Texas Intermediate futures settled under $39 per barrel Monday, in line with a selloff in global financial markets driven by concerns about prospects for economic growth. WTI closed on the CME/Nymex at $39.31 per barrel on Aug. 25, down $3.31 per barrel from its Aug. 18 settlement of $42.62.
October Brent crude dropped below $43 per barrel for the first time since March 2009, almost 60 percent below its one-year high of $103.19, registered in August last year. Brent was trading around $43.21 per barrel on the CME on Aug. 25, down $5.60 from $48.81 per barrel a week earlier.
A vast majority of base stock producers lowered prices recently for several of their API Group I, II and II+ oils, giving in to the downward pressure exerted by sliding crude and feedstock prices combined with a seasonal slowdown in demand.
On the naphthenics side, Ergon also communicated price decreases of 10 to 17 cents per gallon this week, with its lighter products moving down more than the heavy products, and other adjustments made based on end-use application and discounts that were previously in place. The markdowns will go into effect Aug. 27.
In recent weeks, paraffinic base oil producers ExxonMobil, Paulsboro, and HollyFrontier had reduced prices on Group I light-vis grades between 10 cents/gal and 18 cents/gal, depending on the grade and the supplier, on Aug. 17-20.
Within the Group II category, Motiva, Flint Hills Resources, Phillips 66, Chevron, and Calumet trimmed prices between Aug. 7 and Aug. 19, with the decreases ranging from 10 cents/gal to 40 cents/gal. ExxonMobil and Safety-Kleen dropped prices of their Group II+ oils by 10 cents/gal on Aug. 17 and Aug. 19, respectively. Neither Phillips 66, nor SK adjusted their Group II+ postings.
The Group III category continued to buck the downward trend, maintaining posted prices that have not changed since December.
High-viscosity grades in the Group I and II segments have also avoided price cuts, propped up by tight supply and robust demand, sources explained. A couple suppliers reiterated that availability of the heavier base stocks continued to be sparse and that they had not been able to entertain fresh inquiries for spot transactions.
Snug conditions were said to be the result of U.S. refiners running shale oil, which yields lower volumes of heavy-vis base oil. Upcoming maintenance turnarounds were also expected to tighten supply. Calumet is preparing for a planned turnaround at its Shreveport, La., plant, and although the company has been padding inventories, the general perception is that availability of heavy grades will tighten further.
Calumets catalytic dewaxing unit, which manufactures the light-viscosity oils, will be shut down for two weeks starting in mid-September, while the solvent dewaxing or methyl ethyl ketone unit, responsible for the output of heavy base oils, will be idled for two weeks in October. The Shreveport facilities have capacity to produce 4,800 barrels per day of Group I base oil and 7,000 b/d of Group II cuts.
Additionally, there were reports that Chevron was performing maintenance at its Pascagoula, Miss., Group II base oil plant this month, and that this had also caused the supply contraction of the heavy-vis cuts. However, there was no producer confirmation about the maintenance program at Pascagoula.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.