Despite the typical languor that tends to weigh down sentiment in the fourth quarter, some segments of the U.S. market were surprisingly active this week.
API Group II producers commented that they had received several inquiries during the past few days, and at least a couple of suppliers were heard to be sold out of the heavy-viscosity grades.
This situation may be partly attributed to the current turnaround taking place at Chevrons 20,700 barrels per day Group II plant in Richmond, California. The plant was shut down at the end of September and is expected to remain off-line for approximately 55 days. The producer placed its heavy-vis cut on allocation as a result of the outage, while supply of the light and mid-vis grades was heard to be strained as well.
The Richmond refinery is undergoing extensive renovations, according to industry sources, with the company planning to invest approximately $1 billion to reduce the units environmental impact and improve its reliability. The renovations are scheduled to be completed by 2019.
At the same time, it appears that Phillips 66 and Flint Hills Resources, who jointly market base oils produced at the Excel Paralubes plant in Westlake, La., have started to build inventories ahead of a turnaround in March of next year, limiting availability of Group II spot volumes. The Excel Paralubes unit has capacity to produce 22,200 b/d of Group II grades. Perhaps this also explains the posted price increase implemented by Phillips 66 on its 600N cut as of Oct. 4, sources noted.
The snug supply conditions, coupled with the recent climb in feedstock prices, seem to be lending support to fairly stable postings this week, although there is still talk of TVAs (temporary voluntary allowances) offered to select accounts on the back of Motivas posted price decrease on Group II oils in early October.
Steeper crude oil values compared to a month ago are also exerting upward pressure on naphthenic base oil cuts, with suppliers noting that there was a possibility of price adjustments if feedstocks moved up.
On the other hand, there were also accounts of spot prices for certain heavy-viscosity pale oils remaining exposed to a softening trend due to plentiful availability and the possibility of replacement with other base oils. The pressure seemed to be affecting export transactions in particular, as buying interest for U.S. product has weakened.
A similar scenario applied to paraffinic bright stock, with lower spot ideas being discussed given increased domestic supply of this grade against weaker demand and suppliers need to protect market share.
Also within the Group I segment, it was heard that Mexican producer Pemex had taken its Salamanca base oil plant off-line in early October due to feedstock supply problems. The facility, which has a capacity of 6,000 b/d of Group I base oils, was expected to be restarted before the end of the month.
Upstream, West Texas Intermediate (WTI) futures were under pressure on Tuesday, and reversed earlier gains on news that Iraq wants to be exempt from a potential output freeze discussed by major producers. A stronger dollar and expectations of growing U.S. stockpiles also impacted market sentiment.
WTI futures on the CME/Nymex settled at $49.96 per barrel on Oct. 25, down 33 cents per bbl from the Oct. 18 settlement of $50.29 per bbl.
Light Louisiana Sweet wholesale spot prices closed at $51.41 per barrel on Oct. 24, slightly down from $51.45 a week ago, according to data from the U.S. Energy Information Administration.
Brent was trading at $50.79 per bbl on the CME on Oct. 25, down 73 cents/bbl from $51.52 per bbl on Oct. 18.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.