U.S. Base Oil Report


Pricing in the U.S. base oil market jumped into action this week as Ergon Refining announced that it would be marking down its naphthenic oils on March 6. This follows almost two months of fairly subdued pricing activity, both on the naphthenic and paraffinic fronts.

Ergon will be moving the price of its naphthenic oils down by 15 to 25 cents per gallon; the amount of the decrease will depend on the viscosity of the product, the company said in its notification.

Other naphthenic producers said they would be monitoring the market, but did not intend to adjust prices at this time.

Demand for naphthenic oils has improved over the last few weeks, with requirements for the heavier grades up slightly compared to their lighter counterparts, sources said.

A similar situation was seen on the paraffinic side, where orders for the heavy-vis cuts have been stronger than for the light grades.

A market player aptly summed the current trend in two words: “Think Spring!,” as both suppliers and buyers start to gear up for the busiest time of the year.

There have not been any posted price revisions for paraffinic oils, but several participants said that discounts on spot cargoes have been reduced, particularly for the heavy cuts in both the API Group I and II segments.

In fact, some spot prices have started to move up, sometimes by “healthy double digits,” sources said, as buying appetite has strengthened and has resulted in tightening availability, particularly as far as Group II volumes are concerned.

Additionally, there has been a larger draw of vacuum gasoil (VGO) for distillates and heating oil to the detriment of base oil production. A number of plant operators have cut base oil output in the last few weeks due to unacceptable spot values, sources explained.

Several export transactions, including a few cargoes booked to India, have also helped to bring inventories into balance, sources added.

A Venezuelan tender calling mostly for 500/600 grade has been floated, but it could not be ascertained which suppliers would be participating.

In production news, Cross is expected to complete a turnaround at its 5,000 barrels per day naphthenic base oil plant in Smackover, Ark., this week. The unit was taken off-line on Feb. 20.

There was talk that additional product from ExxonMobil’s expansion in Baytown, Texas, will not be introduced into the market in early March as originally expected. Sources said the start-up of the expanded facilities would be delayed by a few months, and that the refiner had secured base stock cargoes from other suppliers for its own downstream operations until the expansion came on stream.

While ExxonMobil did not provide specifics about a possible delay, the producer explained that the expansion project is ongoing. “As announced in 2013, a project was initiated to expand Group II/II+ base stocks production capacity at the Baytown, Texas refinery. Start-up of that project is progressing,” a company spokesperson said.

Upstream, West Texas Intermediate (WTI) futures have embarked on an upward trek on speculation that reduced investment in oil rigs would curb production growth in the U.S.

WTI futures settled on the CME/Nymex at $50.52 per barrel on March 3, up $1.24 per barrel from a settlement at $49.28 per barrel on Feb. 24.

Brent crude was trading around $61.02 per barrel on the CME on March 3, up $2.12 per barrel from $58.90 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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