Up, up and away went crude oil prices rising above $88 per barrel this week. Due to this steep gain upstream, there is no doubt that U.S. base oils operating margins are suffering. But whether producers could push through posted price increases remains uncertain at this juncture, sources suggested.
Market fundamentals are shaky, making it potentially more difficult to raise prices. Buyers pointed to lackluster demand amid reasonably healthy availability.
Although producers inventory positions are better balanced than levels seen in August and early September, current demand has yet to pick up steam and thus is falling short of suppliers expectations.
Nevertheless, several producers claim that a number of neutral grades have tightened up and therefore they feel that offering discounted spot prices is not necessary. And in most cases, spot offers are likely firming due to rising crude values and less availability, traders indicated.
Some buyers report their stock levels are in good shape and additional volumes are not required. However, with the threat of higher prices, base oil consumers might be inclined to buy ahead of potential price hikes.
All the while, a significant portion of key base oil players are attending the annual Independent Lubricant Manufacturers Association conference in Carlsbad, Calif., and it is highly likely that supply partners are keeping a close eye on upstream developments and how high crude values might reach.
Oil prices surged to over $88 per barrel on Tuesday in reaction to news that OPEC (the Organization of Petroleum Exporting Countries) said crude production by non-member countries is likely falling even as global demand for oil is rising.
Fast-rising oil prices also found support on concerns that Turkish forces will pursue Kurdish rebels into Iraq, disrupting oil supplies, and by technical buying by investment funds.
Despite OPECs decision last month to boost its production by 500,000 barrels per day beginning next month, the rest of the world will likely produce 110,000 fewer barrels of oil per day than expected in the fourth quarter, OPEC said in a report.
At the close of Tuesdays NYMEX, light sweet crude ended the session at $87.61 per barrel, a gain of $7.35/bbl from the weeks earlier settlement of $80.26/bbl. During intraday trade, front-month oil futures price hit a record high of $88.20/bbl before easing ahead of the bell.
Carolyn L. Green, based in Houston, can be reached directly at carolynlgreen@gmail.com.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.