Base Oil Pricing Report

U.S. Base Oil Price Report

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U.S. base oils producers on both the paraffinic and naphthenicsides of the market stepped out with price increase initiatives this week, withChevron indicating it would raise its API Group II West Coast posted prices by25 cents/gal, effective July 26, and Calumet lifting its naphthenic oil pricesby 15 cents/gallon on July 30.

Calumet cited ongoing tight supply and escalating crude pricing as the main reasons for the increase.

Once Chevrons increase is implemented, the producers 100R West Coast posting will move up to $4.07/gal, its 220R to $4.37gal, and its 600R to $5.20/gal.

Other suppliers were heard to be mulling possible price movements as well, but sources said that at least one producer appeared reluctant to support the Chevron increase on concerns that higher prices in the United States would open up the Asia arbitrage, and the supplier would only consider adjusting its TCAs (temporary competitive allowance, also referred to as TVA – temporary voluntary allowance). Another supplier has assumed a wait-and-see position, while a few buyers underscored that they would not want to see a price increase now, only to have a decrease six weeks later.These are the initial reactions to the announced increases, and participants’ sentiment could very well change as factors such as profitability weigh in.

A second naphthenic supplier said that it was considering a price adjustment, possibly for early August implementation, but the magnitude of the potential increase was not mentioned. Prices for naphthenic oils have not undergone any price adjustments since November 2012, but balanced-to-tight supply and rising production costs have been exerting upward pressure for the last several weeks. Demand for pale oils has also been described as steady-to-strong, with the export market seeing increased activity during June and July on expectations that prices would be moving up. Suppliers added that all viscosities were moving well, but demand for pale 60 and transformer oil has been particularly healthy.

On the paraffinic side, availability has also been fairly snug for the heavy vis cuts, while supply of the lighter grades has been slightly more plentiful, although a couple of suppliers underscored that they were in tight positions across the board.

Furthermore, base oil purchases had seen a boost in the last couple of weeks on buyers foreboding of a potential price hike because of rising crude oil and vacuum gas oil prices.

On the other hand, buyer sources said that Group II plants along the Gulf Coast appeared to be balanced-to-long on product.

While there has been some competitive activity on the spot front – with a number of suppliers granting larger discounts on the light grades – a few sellers had stood firm by their indications and had not lowered their prices at all. Sources conjectured that the steeper discounts were probably being granted to large volume customers so as not to upset the pricing on the day-to-day business, and were mostly driven by a need to balance inventories.

Upstream, WTI (West Texas Intermediate) crude slipped into a downward trend as U.S. economic data showed weaker than anticipated growth. WTI settled on the CME/Nymex at $107.23 per barrel on Tuesday, July 23, up $1.23/bbl from last weeks settlement at $106/bbl.

Brent for September delivery settled at $108.42/bbl on the London-based ICE Futures Europe exchange, down $1.04/bbl from $109.46/bbl for August futures a week ago.

LLS (Light Louisiana Sweet) crude was trading at a premium to WTI of $5.75/bbl on July 19, compared with $4.95/bbl on July 12.

VGO (vacuum gas oil) premiums over WTI were hovering at around $20/bbl for low sulphur product.

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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