As this week advances, U.S. base oil fundamentals hold steady, with supply largely balanced alongside healthy demand for a number of grades. Posted prices are unchanged, but buyers and sellers are keeping a very close eye on upstream developments.
Consumers say they are currently receiving their requirements for most paraffinic cuts and pale oils. However, they admit that in some cases, additional volumes would be welcomed.
Unfortunately, surplus of certain grades is not available. Heavy neutrals as well as heavy viscosity naphthenic base stocks are extremely tight and are expected to remain so through year-end.
Conversely, there remains ample availability of light and mid vis grades, although it depends on supplier as to how much inventory is available for spot trade. Suppliers are determined that prices will continue to firm weekly given the upswing in feedstock costs.
Meanwhile, crude oil prices briefly rose above $80 per barrel on Tuesday as better-than-expected corporate earnings boosted investor confidence and the U.S. dollar fell against other major currencies.
Crude prices have gained more than 60 percent since March amid expectations that an economic recovery, especially in fast-growing emerging markets like China, would spur oil demand.
Energy analysts agree that the recent oil rally is not based on fundamentals, but rather on risk appetite as investors seek some kind of plausible return on their money. (Commodities like oil and gold are bought and sold in dollars, making them cheaper and more attractive to investors when the U.S. currency weakens.)
Oil futures have edged higher for the past eight days, but analysts have questioned whether the recent rally is justified as crude market fundamentals remain weak. Supply has climbed steadily in recent months, while demand remains unclear pending a broader economic recovery.
Another concern for base oil producers is the value and availability of vacuum gas oil, a key component in the production process. Presently, VGO values are assessed at approximately $1.99 to $2.02 per gallon for the 70/30 split – an industry formula. VGO values can also be priced at a plus-or-minus to crude prices, and presently VGO is running at premium of about $5.50 per barrel to West Texas Intermediate crude.
VGO is a key feedstock in the manufacturing of transportation fuels, including gasoline, diesel and jet fuel, as well as base oils. Despite generally weak seasonal demand for gasoline, VGO is deemed tight due to many refineries operating at reduced rates.
At the close of the Tuesday, Oct. 20, NYMEX session, light sweet crude futures ended at $79.09 per barrel, a notable gain of $4.94 compared to the week-earlier settlement at $74.15/bbl.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.