Quickly approaching years end, the base oil market is largely focused on how most suppliers are attempting to reduce inventories. Fortunately, a number of planned turnarounds during the September-to-November time frame will take care of an otherwise significant overhang of Group I and II neutrals. Also, some producers and traders have managed to ship several cargoes of surplus base oils offshore in efforts to help assuage abundant stock positions. Only recently Chevron announced that it plans to regularly export an array of Group II neutrals and unconventional base oils from Richmond, Calif., to its terminal in Antwerp, Belgium.
However, many carriers are already committed for November, December and much of January, resulting in negligible cargo-space for near-term opportunities, shippers said. Exchange rates (strong Euro versus weak U.S. dollar) also have hindered some offshore trade, traders added.
Early in the fourth quarter, light sweet crude values steadied around $80 per barrel. Crude oil analysts still cannot predict a definitive path for crude values, although one industry consultant suggested they would climb higher in coming years on dwindling global supplies. In five or so years out, it is crystal clear that energy costs will rise steeply and the North American market will be at a strong competitive disadvantage, the consultant said.
Looking at the naphthenic picture, pale oils remained largely balanced, a position most producers strive to be in at years end. For the better part of 2006 and most of 2007, demand was at robust levels for all grades, and prices rose steadily as well.
Significant growth in Asia in recent years for light-end pale oils is the leading reason why naphthenic prices have remained firm and inventories low for 40, 60 and 100 viscosity grades, sources said. Chinas demand accounted for 41 percent of the global increase in electricity in 2004 and rose just under 14 percent in 2005, fueling the countrys appetite for naphthenic-based transformer oils. This trend is expected to prevail in coming years.
Congruently, U.S. pale oil producers braced for increased demand as the rubber processing industry transitions to replacing aromatic extracts with pale oils largely for the manufacturing of tires.
For now, all paraffinic and naphthenic producers consider covering customers requirements as their main objective, unforeseeable hurdles notwithstanding. Blenders and industrial consumers are keeping a positive attitude and anticipate smooth sailing for the remainder of the year.