It was a fairly quiet week for trade in the U.S. base oil arena. Producers appear to be sizing up the supply/demand situation while contemplating improving margins going forward. Buyers, meanwhile, are holding out for good deals. Whether there are suppliers still willing to offer steeply discounted prices remains unclear.
Sources said that, in recent weeks, a few paraffinic spot transactions involving both domestic and export parcels were concluded at below $1.50 per gallon FOB. Many suppliers considered those prices unrealistic and not representative of todays market. They added that such a price point would most likely not be repeatable for May business since feedstock costs have increased over the last month.
The same logic was heard from the naphthenic side as well. Suppliers are hopeful that prices will improve from recent levels as low as $1.40/gal to $1.45/gal FOB. In many circumstances, an average price for an array of pale oils is nearer $1.75 to $1.80/gal FOB. There are also higher-priced deals being concluded on a regular basis at over $2.10/gal, a few sellers claim.
Nevertheless, there are some strained situations. According to sources, there are a few paraffinic and naphthenic suppliers who need to offload top-heavy stock positions. Sources suggested that several sellers are endeavoring to reduce inventories by dangling attractive sale offers to lure fresh buying interest.
As reported recently, some end-use segments such as industrial are seeing sales off by an estimated 30 percent to 40 percent so far this year compared to the same period a year ago. There are other sectors, including specialty, that are struggling too, but volumes are only down by an estimated 10 percent to 15 percent compared to the past several years.
In a number of cases, when possible, production rates have been throttled back in efforts to keep inventories in better balance. These tactics have apparently been successful as several API Group I producers say they have no surplus available and are not participating in spot activity, according to potential buyers.
American Refining Group in Bradford, Pa., entered a 10-day turnaround over the weekend. The company said it has sufficient inventory at the 2,400 barrel per day facility to accommodate regular customers requirements during the planned outage.
In upstream news, crude oil has traded around the $50 per barrel mark for the better part of April, although it spiked to near $54/bbl last month. Oil prices dipped to their lowest levels in recent years, to around $35/bbl, in February, after reaching their highest levels of $147/bbl last July.
Meanwhile, investors struggle to gauge the health of the global economy which is reeling from its worst slowdown in decades. Most recently, traders are cheering over early signs that U.S. banks may be stabilizing.
At the close of the Tuesday, April 14, NYMEX session, light sweet crude futures ended the day at $49.41 per barrel, a modest gain of 26 cents compared to the settlement a week earlier at $$49.15/bbl.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.