Although U.S. base oils business is viewed as largely stable this week, players concur that the winter lull appears to be taking hold as the year draws to an end.
Following what many participants from both the buy and sell sides admit has been a tumultuous year, it was apparent that they are welcoming a slowdown at this juncture.
Overall sales dropped off considerably at the start of this year, but a rebound in customer requirements began in August and business has continued to improve, suppliers said.
In many cases, demand for heavier grades has been most prevalent during this recovery mode. In the meantime, producers have had to contend with an overhang of light vis product.
But operating base oil facilities at reduced rates for the better part of this year has helped in keeping supply and demand balanced. As well, some sellers have successfully offloaded surplus light vis grades to those willing buyers who could handle additional volumes.
In the meantime, price stability has reigned for months now, buyers proclaim, even though many had anticipated producers would push up prices amid climbing feedstock costs in recent months. Posted prices have not been adjusted since July.
However, despite crude oil values reaching a high of $82 per barrel in October and largely holding around $75 to $79/bbl during November, no attempt to raise posted prices was taken by any major producers. Valero and Calumet stepped out with price hikes of 25 to 30 cents per gallon in early November, but they quickly reversed their increase initiatives.
For now, base oil players focus is on the impending first quarter and whether the downstream sectors will make a strong come back. Their hopes are high, and most indicators do point to a much-improved scenario, particularly when compared to a soft Q1 of this year.
In upstream news, late last week crude oil values began to lose upward momentum and have slipped below a market-deemed psychological level of $75 per barrel, in fact by several dollars.
On Tuesday, crude prices dipped under $73/bbl as the U.S. dollar strengthened and a slew of economic data suggested a less-than-rosy outlook, according to analysts.
In Europe, reports stemming out of Britain and Germany showed that international manufacturing remains weak. And U.S. based economists noted that while America’s jobless numbers improved last week, that doesn’t necessarily mean consumer spending or energy consumption will return anytime soon.
Most energy experts also expect the U.S. government will report that crude supplies rose again last week, just as they have in seven of the past 10 weeks, in a report due out today.
Additionally, the dollar rose, which can assist in pushing crude oil prices lower. Because crude is priced in the U.S. currency, investors holding other currencies like the euro must spend more to buy oil.
At the close of the Tuesday, Dec. 8, NYMEX session, front month light sweet crude oil futures ended the day at $72.62 per barrel, a substantial loss of $5.59 from the week earlier settlement at $78.31/bbl.
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.