With buyers and sellers returning from the holidays, the U.S. base oil market entertained much discussion about prices this week – specifically about whether changes are likely in the near term. Many observers said they saw no clear pressure for prices to move in either direction, but that markups are slightly more probable now than last month.
With the GF-4 passenger car motor oil specification due to be approved this week – and to have its commercial launch in July – at least some blenders are still trying to determine how much additional Group II oil they will need. The extent of the shift could affect prices by widening the spread between Group I and Group II oils.
Said one supplier, I think a lot of independents are saying, Weve heard for years that we were going to have to switch to Group II or start using polyalphaolefin and it hasnt happened. So theyre a little skeptical about how drastic the change is going to be this time. But at the same time, they dont want to get caught without supply so they are trying to establish positions with us.
Buyers and sellers noted that crude oil prices have risen again recently. Crude closed yesterday at $33.54 per barrel on the New York Mercantile Exchange, $1.12 higher than a week ago. Prices have also climbed for vacuum gas oil feedstock, and for natural gaswhich is used both as fuel for refineries and a source of hydrogen in premium base oil manufacturing.
I cant say that I see a reason for price increases based on the demand-supply balance that we see right now, one supplier said. But with crude and VGO having gone up, I would say there is more pressure for prices to rise than there was a month ago.
While the prospect of GF-4 may be moving some blenders to buy additional barrels of Group II, others may be stocking up on Group I or Group II to couch against concerns over plant shutdowns. One Group I and two Group II refineries have scheduled maintenance turnarounds during the first quarter. Producers have vowed to build inventories to keep their customers supplied but some are anxious.
The issue of precaution buying, said some observers, could complicate efforts to interpret sales trends and keep the pricing picture cloudedfor the next several weeks. If base oil sales are up in January, they said, it will be difficult to know whether to attribute them to rising demand for lubricants, or to blenders’ stockpilingagainst supply worries.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.