U.S. base oil activity was described as slow this week, with players apparently enjoying the last of the summer holidays. Moreover, sources suspect that business will likely remain somewhat lackluster through the upcoming extended Labor Day weekend.
Despite the seemingly quiet backdrop, a shortage of supply remains a serious concern to both sides of the market. The recent exits of Citgo and Marathon as key Group I base oil suppliers, combined with the approaching turnaround season including the scheduled 45-day outage at the Motiva plant in Port Arthur, Texas, has players full attention. Buyers and sellers both agree that surplus gallons of base oils are extremely difficult to locate.
Although the overall supply picture is not quite as bleak as viewed in June, it is still a very tight situation, sources reiterated. And taking into consideration the issues mentioned above (the closures of two facilities and upcoming turnarounds), some players speculate that market conditions will remain stressful through the end of this year.
In terms of pricing, most paraffinic business is being sustained at high levels, on average at posted prices with possibly small discounts of up to 5 percent allowed for contract volume buying, some participants said. In other cases, there are no discounts given, and buyers are paying top dollar.
On the naphthenic front, prices are also holding firm, sellers claim. Pale oils remain generally tight, but there are a few grades that appear to be more readily available, depending on supplier. Still, most producers report that there is limited-to-no spot material, but say that customers lead times have improved. Most shipments are now on schedule, sellers added.
Indeed, consumers are growing tired of steep prices and are panting over the possibility that producers might lower postings. But some market watchers now surmise that potential decreases could be held up until the supply situation improves. And no one knows when that could be, as it seems to be dependent on fourth quarter demand.
Another factor that could lead to lower posted base oil prices would be a drop in crude oil values to levels below the $100 per barrel mark. However, this, too, seems to be anyones guess as to whether or when it might happen.
Even the recently announced Chevron news outlining plans to construct a premium 25,000 barrels per day base oil facility at the company’s Pascagoula, Miss., refinery was received with mixed views. On one hand, the market welcomes the prospect of additional high quality base stocks being added to the overall U.S. capacities. But the expected start-up (late 2011) of this facility is arriving a bit late to help relieve the current tight situation, some sources acknowledged.
Meanwhile, looking upstream at the volatile crude market, once again prices have spiked on weather-related worries. Recently upgraded from a tropical storm to a Category 1 hurricane, Gustav is currently garnering more strength in the Caribbean near Haiti and is causing worries to oil companies located in the Gulf of Mexico. Oil prices reacted to the fresh weather issues and gained almost $5 per barrel during intra-day electronic trade on Tuesday to well over the $117/bbl mark. However, the rising oil values were tempered due to a stronger U.S. dollar, and the $117-plus level was not sustained.
At the close of the Tuesday, Aug. 26, NYMEX session, front month light sweet crude futures settled at $116.27 per barrel, a gain of $1.74 from the week earlier close at $114.53/bbl.
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.