U.S. Base Oil Price Report

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The new month ushered in a price change for naphthenic base oils, with Ergon stepping out with a decrease just days after a majority of paraffinic oil producers had trimmed their postings.

Ergon announced a 15 cents per gallon decrease in the price of its naphthenic oil products, effective Nov. 4. This adjustment applies to all viscosities in the North American market, excluding the HyVolt family of transformer oils, according to a company source.

No other pale oil price decreases had emerged by the publishing deadline, but other naphthenic producers were heard to be evaluating current market conditions.

Demand has started to decline, as is typical for this time of the year, although requirements for transformer oils has remained steady, according to suppliers.

While there were no formal price decrease announcements in October, participants commented that some producers have been granting discounts on a case-by-case basis, which had effectively brought pale oil prices down.

A market participant commented that some prices had already dipped so much, that it was difficult to imagine that producers would be making a profit. It seems that producers are concerned about protecting market share, and are sacrificing returns in the process, another source added.

In terms of production, most plants were heard to be running at normal rates. San Joaquin Refining is aiming to complete a routine turnaround at its Bakersfield, Calif., 8,100 barrel per day plant in the first quarter of 2016.

On the paraffinic side, posted prices showed no fluctuations this week, following reductions implemented between Oct. 14 and Oct. 27.

A majority of producers lowered prices during that period by 7 cents per gallon to 15 cents/gal, depending on the grade, and cited slowing demand, sliding crude oil values, and the need to remain competitive as the main drivers.

A push to draw down inventories before the end of the year also played a role, a source said, particularly as November and December orders are typically less robust than during the previous months.

Only a couple of producers – SK and Phillips 66 – did not adjust their API Group II+ and III postings. Some market players found this to be puzzling, as most domestic base oils have been under downward pressure due to weakening fundamentals, and prices in Asia – the source of the Group II+/III barrels from the two producers – have also weakened since late July.

An industry insider explained that the Group II+/III segment in the U.S. is very small, and there are fewer consumers that need to use these particular oils, compared to the many buyers of Group I and II base stocks. The number of suppliers is also very limited. As a result, prices appear to be less exposed to downward pressure.

Upstream, West Texas Intermediate futures firmed in what many described as a technical rebound, while concerns over a global supply glut continued to cap bullish attempts to push prices even higher.

West Texas Intermediate closed on the CME/Nymex at $47.90 per barrel on Nov. 3, up $4.70 per bbl from its Oct. 27 settlement of $43.20.

Brent was trading around $50.54/bbl on the CME on Nov. 3, up $3.73/bbl from $46.81/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.

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