Another hurricane threat in the U.S. Gulf Coast region, along with a prevailing tight supply situation and lingering high prices, were key talking points this week in the base oils market.
A strong storm is once again brewing in the Gulf of Mexico, this one named Hurricane Ike, and could be heading for the Texas coast sometime later in the week. As recently as Monday, it appeared that the Houston area was the target for Hurricane Ike, but at this writing the most current meteorological models point toward landfall somewhere between Brownsville and Corpus Christi. Forecasters say the storms path could still change in the next few days. It was understood, however, that the Houston Ship Channel could close on Wednesday in advance of any potential bad weather.
Despite a series of powerful hurricanes in the United States since early August, crude oil values continued to soften, losing upward momentum on global oversupply concerns and hedge-fund positioning, sources said.
Crude values have shed approximately $35 per barrel since mid-July, but posted prices for paraffinic base oils remain unaltered. In fact, postings are holding firm at levels unchanged since the last round of hikes were put into play in early July. At that time, crude prices were bouncing around the $138 to $145/bbl mark.
In the naphthenic arena, prices are also more or less firm. For some pale oil customers whose prices are linked to a monthly crude average, there has been some downward revision in price. But in other situations, where customers are paying on a more direct basis, no discounts have been offered.
Both paraffinic and naphthenic producers maintain that they are still trying to recoup lost margins from earlier in the year. And due to snug supply against healthy demand, sellers are holding prices at or near the posted levels.
Nevertheless, purchasers say they expect to start seeing some price relief, even as they accept that the difficult supply scenario is supporting current pricing. A number of players suspect that once the turnaround season has completed, and presuming crude oil prices remain flat, base oil producers will begin to issue discounts some time during the fourth quarter.
At the close of the Tuesday, Sept. 9, NYMEX session, front-month light sweet crude futures settled at $103.26 per barrel, down $6.45 from the Sept. 2 close at $109.71.
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.