U.S. base oil suppliers may be talking down the likelihood of further price reductions, but purchasers see hopes for more cuts, especially for lower-viscosity stocks.
After five rounds of cuts in 11 months – three since mid-October – consensus appears to be growing among suppliers that momentum for lower prices has petered out. Prices for crude oil, which fell sharply during October and November, have since held steady. Gross refining margins have dipped close to their lowest levels in a year.
Still, independent lubricant blenders say they see indications that base oil prices could fall again.
The market is very soft right now, a Midwest blender said Tuesday. There are a lot of spot deals available, typically for 15 cents [per gallon] better than posted prices. Thats pretty sweet, and that means that people have surplus supply that they want to move. Purchasers have some negotiating power that we didnt have not too long ago.
According to some blenders, lower-viscosity base oils – such as solvent 100 neutral – are especially in surplus, possibly because new motor oil specifications have shifted demand toward middle- and high-viscosity oils. They speculate that this may lead to an increase in the premium for high-viscosity products. During the most recent round of cuts, prices for low- and middle-viscosity oils fell by 7 cents, while high viscosities dropped by just 5 cents.
The vis pool on the supply side simply doesnt match the vis pool on the demand side, one base oil purchaser said. Until its brought back into balance, I think youll see prices for lighter grades coming down more than the higher.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.
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