U.S. base oil market conditions were little changed over the past week. It appears that the supply/demand situation is still leaning in favor of producers, but that could be about to change.
Producers are clinging to strong demand as the much-needed support for the current pricing structure. Suppliers point to the fact that base oil inventory positions remain uncomfortably low alongside still-hearty customer orders.
In the meantime, base oil consumers are becoming increasingly outspoken, with their frustration levels building over why producers have not reduced posted prices. They claim that requirements have slowed from the lofty quantities seen earlier in the summer. Buyers added that crude prices have slumped, and sellers should lower their sale offers as a result. But no such action has materialized.
Crude oil values have been bouncing at points just under the $114 per barrel mark for over a week, although they spiked above $116/bbl on Tuesday. But despite softer crude prices, base oil producers are still not compelled to reduce postings.
Sources say that producers are in total margin-recovery mode and that this trend will likely continue for a while longer, particularly if oil prices stall at current levels. If crude prices do not rally, but rather head for the $100 to $110/bbl level, then suppliers will have little alternative but to issue downward adjustments, some onlookers surmise.
Regarding upstream concerns and cost influences, vacuum gas oil values are seemingly stable at near the $2.77 to $2.92 per gallon mark for high-sulfur and low-sulfur VGO, respectively. At the same time, ExxonMobils solvent neutral 150 posted price – a reference point followed by many — is stationary at $4.97/gal, a level in play since July 1.
A few buyers point to the gap between VGO and base oil postings, noting that it has steadily widened and saying it is now time for producers to act toward the goodwill of the buy side.
Meanwhile, crude oil prices turned sharply higher during intra-day trade on Tuesday, gaining $3/bbl to swell over the $116/bbl mark, as military action in Eastern Europe sparked concerns about supply and a weaker dollar suggested a downturn in economic activity and pullback in oil use. Oil values did moderate however, heading into the close.
In the Tuesday, Aug. 19, NYMEX session, light sweet crude futures ended the day at $114.53 per barrel, a gain of $1.52 over the week-earlier settlement of $113.01.
Carolyn L. Green, based in Houston, can be reached directly at carolyn.l.green@gmail.com.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.