The U.S. base oil market appears to have regained its footing, following recent downward price adjustments, with steadier crude oil pricing and regular demand lending support to current base stock values.
Both buyers and sellers concurred that the heavy cuts remained in tight supply, and that there was no shortage of the light-viscosity grades.
Ample availability of the lighter cuts within the API Group II category – particularly after the introduction of added Group II/II+ capacity from ExxonMobil’s Baytown, Texas, base oil plant earlier this year – has led to strong competition among producers, sources said.
Within the API Group I category, bright stock was described as balanced to snug. While a majority of Group I producers had lowered prices for the lighter grades, they avoided markdowns on the heavy-vis cuts and bright stock, given continuous demand and tight availability.
A very unusual combination of weather factors, among them the indirect impact of Hurricane Joaquin, brought heavy rains and flooding to the Carolinas this past weekend – a reminder that we are almost at the end of the hurricane season. Hurricane Joaquin also hit Bermuda after hammering the Bahamas and made a cargo ship with 33 crew members capsize.
A majority of base oil and lubricant plant operators on the U.S. Gulf Coast have padded inventories ahead of the start of the hurricane season – which runs June 1 to Nov. 30 – to cover demand should unexpected shutdowns occur.
On the export front, inquiries for U.S. Group I products from Mexican buyers are still surfacing, as the local producer, Pemex, has been experiencing production hiccups at its Salamanca Group I base oil plant over the last two months, but requirements have experienced a slowdown compared to earlier this year, sources added.
Upstream, the rig count in the U.S. continues to fall. According to Baker Hughes’ North America Rig Count, the number of oil and gas rigs operating in the U.S. dropped to 809 during the week ending Oct. 2, down from 1,922 rigs during the same time last year. The oil rig count plunged to 614 rigs, a massive drop from the 1,591 rigs drilling for oil in 2014.
Nevertheless, there is concern that the Energy Information Administration weekly report will show a build in U.S. crude inventories when it is released on Wednesday.
West Texas Intermediate futures moved up on Tuesday, boosted by a rally in U.S. gasoline, a weaker dollar, and the possibility that Russia might meet other major oil producers to discuss the market.
WTI closed on the CME/Nymex at $48.53 per barrel on Oct. 6, up $3.30/bbl from its Sep. 29 settlement of $45.23.
Brent was trading around $51.92/bbl on the CME on Oct. 6, up $4.21/bbl from $47.71/bbl a week earlier.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.