Overall activity in the U.S. base oils market continued at a fairly slow pace this week, reflecting the usual summer doldrums, sources said, although there continues to be fairly robust demand for heavy paraffinic grades, with less attention noted for light vis.
As recently reported, large slugs of solvent neutral 500 to 700 (both API Groups I and II) and bright stock remain difficult to source. Several suppliers who traditionally participate in spot offshore activity confirmed not having sufficient quantities to offer on a prompt basis. But they admitted that circumstances could change heading into the fall season. Suppliers went on to say that their tanks are presently well balanced, but if domestic demand does not pick up in mid-to-late September, there could be adequate volumes to offer for export in October.
Despite the apparent tightness of paraffinic heavy ends, sources said that a cargo consisting of heavy neutrals and bright stock loaded the first week of August. This was the first shipment of these grades reported in a while, a source noted. Transaction details were not disclosed, but it was believed that the parcel was 3,000 to 5,000 metric tons total volume, and the deal was concluded based on published industry prices.
Following that transaction, another ship is loading a parcel of light vis neutral (SN 145 to 165) this week, also at an undisclosed price. Sources hinted that the lowest spot offers heard for light neutrals had been in the region of $2.25 to $2.30 per gallon FOB, although this could not be substantiated as the level done for this particular cargo.
Buyers did say that mid-July price hikes initiated by all paraffinic producers were holding firm, and there was little wiggle room to negotiate prices lower for any grade, apart from the usual volume discounts.
It has been rumored that at least one domestic buyer was seeking a substantial discount of 10 percent or higher from a major producers posting for heavy vis grade. Several other suppliers were reportedly approached, but none would agree to more than a five or six percent volume discount for term business.
A number of base oil suppliers continue to beef up stocks in advance of the hurricane season, which appears to have kicked up this week. This could be the main reason for thin spot activity and firmer price ideas seen in recent weeks.
Meanwhile, upstream indicators continue to baffle many energy experts. Mixed signals on the global economys recovery have led to even more difficulty predicting how much crude oil might be consumed in 2010 as well as the remainder of this year, analysts lamented.
According to a report released by the U.S. Commerce Department on Tuesday, construction of single-family homes rose 1.7 percent in July. It was the fifth straight monthly increase and the fastest pace since last October. Conversely, construction of apartment buildings slumped by 13 percent during the same period.
The economic uncertainty, however, has afforded consumers lower prices at the gas pump, along the lines of prices seen in late summer of 2005.
Meanwhile, all eyes are focused on Hurricane Bill, and whether the storm could gain sufficient strength to pose a threat to oil refiners located along the Gulf Coast. On Tuesday, Hurricane Bill had reached Category 2 storm status and packed winds of 100 miles per hour. The hurricane is expected to reach the Bermuda area later this week, the U.S. National Hurricane Center said.
At the close of the Tuesday, Aug. 18, NYMEX session, front-month light sweet crude futures ended the day at $69.19 per barrel, a modest loss of 26 cents compared to the Aug. 11 close at $69.45/bbl.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.