Flint Hills Resources stunned the market with news that it lowered its full line-up of API Group II base stock postings by 40 cents per gallon on Monday, Dec. 8. Calumet quickly joined in, chopping all its posted prices except bright stock by 30 to 40 cents/gal effective tomorrow.
Calumet has lowered all its Group I and II postings by 40 cents/gal except 700 vis, which goes down 30 cents/gal, and bright stock, which is unchanged. Calumets move is effective tomorrow, Thursday, Dec. 11.
The price drops surprised many players since the market had just absorbed a significant round of reductions, in the area of 60 cents/gal for all grades, just ahead of the Thanksgiving holiday.
Apart from the FHR and Calumet announcements, no other key producers have followed suit. But many players suspect that it is only a matter of time before the market is awash with fresh price decreases. Participants are actually banking on continued steep drops in postings since crude values are hovering around levels last reported in mid-2004.
Oddly, todays posted base oil prices are still far from numbers reported in May, 2004, and in fact are significantly higher. The average ExxonMobil Gulf Coast posting for SN 100 in May, 2004, stood at $1.57/gal, while the current posting is $3.70/gal, more than a $2/gal difference. Bright stock values differ even more, with May, 2004, postings at $1.83. The most current posting is $5.07/gal, over $3/gal higher.
Meanwhile, demand has tapered off substantially from levels seen in September/October. A few suppliers said that buying interest has simply disappeared, and orders they had expected to fill have evaporated.
Most players that follow the market – whether as day-to-day business or just observing from the sidelines – did not expect supply/demand fundamentals to deteriorate so quickly.
Most market watchers anticipated prices to erode due to rapidly shrinking crude prices alongside typical slow demand during December. But they projected the erosion to occur early next year or at least following the planned 45-day shutdown at the Motiva Port Arthur, Texas facility in January.
Spot price ideas are heard to be all over the board. Some buyers and traders claim that, upon negotiating at a certain level, they are also expecting suppliers to add clauses allowing for extra discounts to be given at the time of shipment. Rapidly crashing prices are making it difficult to assess the market.
On the shipping front, sources say that cargo space is abundantly available, which is a significant change compared to only a couple of months ago when space was scarce. Apparently there are a number of ships sitting in the Gulf of Mexico and West Coast areas ready and able to move product, either as part-cargo or as a full shipload. However, demand for space remains subdued, and deep-sea movements are slow this month.
At the close of the Tuesday, Dec. 9, NYMEX session, light sweet crude ended at $42.07 per barrel, a loss of $4.89 from the week-earlier settlement at $46.96.
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.