U.S. Base Oil Price Report


The Presidents Day holiday and the number of market players attending the ICIS Base Oils conference in London Feb. 19-20 resulted in subdued activity in the U.S. base oils market.

Players kept a watchful eye on crude oil prices, as recent slumps had triggered several rounds of price decreases over the last six months, both on the paraffinic and naphthenic fronts, but posted prices were said to be unchanged this week.

While supply continues to outpace demand, there are signs that requirements are starting to pick up, with sellers mentioning an increase in customer inquiries since the start of the month.

A number of suppliers acknowledged that demand had been stronger than anticipated since the beginning of the year – possibly because the outlook had been fairly gloomy in December and buyers who had held off on purchases are coming back to the market to replenish stocks.

At the same time, additional capacity from the expanded ExxonMobil API Group II/II+ plant in Baytown, Texas, was anticipated to weigh on price ideas once commercial product hits the market in late February/early March. While the company has not revealed any details about the quantity of new product coming on stream, speculation points at the possibility that 10,000-15,000 barrels per day will be added.

ExxonMobil also just announced plans of expanding Group II capacity at its Rotterdam refinery (see story in this issue of Lube Report).

With base oil prices having dropped over the last few months, and supply remaining plentiful, market players wondered if it still made sense for producers to run plants at full rates.

According to Kline & Company analysts, global base oil effective capacity utilization dropped from 100 percent at the height of the boom in 2007 to below 80 percent in the recession spurred by the global financial crisis of 2008. Current capacity utilization is estimated at 80 percent, and with demand not expected to show significant growth in the next few years, utilization rates may fall to 75 percent for the next decade, analysts predicted.

In other production-related news, San Joaquin Refining started a scheduled two-week maintenance program at its refinery in Bakersfield, Calif. The producer shut down two crude units, one solvent plant, and one heavy vis hydrotreater on Feb. 14. One of the light vis hydrotreaters remains on-line. The producer, who can manufacture 8,100 barrels per day of naphthenic base oils, had built inventories ahead of the shutdown, and no outages or allocations are expected.

Cross Oil is anticipated to undertake a turnaround at its 5,000 b/d naphthenic base oil plant in Smackover, Ark., for slightly less than two weeks during the February/March timeframe.

Calumet decided to bring forward a turnaround at its Princeton, La., naphthenic base oil plant, which had originally been scheduled for mid-March. The 6,900 barrels per day unit was taken off-line the week of Feb. 9 for six days and is currently back up and running. The companys paraffinic plant in Shreveport, La., which has the capacity to produce 11,800 b/d of Group I and II paraffinic base oils, is not expected to undergo maintenance until the summer.

In other industry news, the United Steelworkers Union strike at several U.S. refineries is entering its third week, with union representatives and Royal Dutch Shell Plc. – who is representing several oil companies – expected to resume labor negotiations on Feb. 18.

One of the refineries affected by the strike is the LyondellBasell unit in Houston, Texas, which produces 3,600 b/d of naphthenic base oils and 1,000 b/d of paraffinic oils. The base oil plant is still running and the producer is shipping out base oil on barges and tank cars, and is now also able to load trucks on a limited basis, a source familiar with the producers operations said. Loading of trucks had been suspended during the previous two weeks.

Upstream, West Texas Intermediate futures reversed their recent upward trend because of ample U.S. supplies as the countrys output has risen to the highest level in more than three decades. The United Steelworkers Union strike was also expected to impact demand as processing of crude products has decreased.

Nevertheless, WTI futures settled higher than last week on the CME/Nymex at $53.53 per barrel on Feb. 17, up $3.51 per barrel from a settlement at $50.02 per barrel on Feb. 10.

Brent crude was trading around $62.53 per barrel on the CME on Feb. 17, up $6.10 per barrel from $56.43 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.

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