Although most observers see U.S. base oil activity moving at a sluggish pace so far this year, a few sources said that the tempo is not all that slow in the marketplace. Some spot buying is taking place, they say, but this action is occasional to say the least, according to sellers.
In an effort to keep the overall supply/demand ratio in good balance, several base oil producers have altered inventories by cutting rates, sources said. Refiners have also elected to redirect greater amounts of vacuum gas oil to alternate downstream units, allowing for increased production of transportation fuels and reducing the available volume of VGO, a key feedstock, allotted for base oil production.
Meanwhile, a number of base oil customers say their stock positions are sufficient, and they are not shopping for additional product, even if suppliers are offering discounted prices. On the other hand, some sellers claim that they are not willing to cut prices despite stagnant demand and fairly ample availability.
Even though crude values have eased, dipping close to the $87 per barrel mark during intraday trade on Tuesday, a few market watchers believe that poor margins could prompt an attempt to push through another round of base oil price hikes shortly. They also point to a $75 per ton increase that was issued in the European base oil market last week, arguing that global producers will seek increases for both paraffinic and naphthenic base stocks in the United States in coming weeks. This remains to be seen, however.
At the close of the Tuesday, Jan. 22, NYMEX session, front-month light sweet crude futures price settled at $89.85 per barrel, a drop of $2.05/bbl from the week earlier settlement at $91.90. Energy analysts now say that crude prices may trend around the $85 to $90 per barrel level given the uncertainty on the economic front and a soft recession at hand. Posted paraffinic prices are unchanged this week.
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.