For much of 2011, the U.S. base oil market has contended with exceptionally tight conditions. Limited supply across the board was the daily fare of many paraffinic and naphthenic players throughout the spring and summer. But signs of improvement began to materialize as fall entered the picture.
Availability appears to be on the road to recovery, albeit spotty and extending only to select grades, buyers said. Fundamentals for API Group II and III remain difficult, and theres little to suggest an uptick is near.
The straitened status of these premium paraffinics has been attributed in part to operational issues earlier this year and subsequent sales allocation programs enforced by producers Chevron and Motiva. Meantimes, demand has ramped up and the need for Group II and III neutrals has reached new highs, according to a number of suppliers.
Of new concern is the number of large maintenance turnarounds expected in the Group II sector, including a few slated for the first quarter, market sources said. Planned outages could involve one large site in Texas and others in Louisiana and Canada. Sources said other maintenance programs may be slated as well, between now and first-half 2012.
Ahead of the rush, Chevrons 20,000 barrel per day base oil facility in Richmond, Calif., embarked on a planned shutdown in early October, expected to last about six weeks. Market sources noted that the company continues to enforce its longstanding Group II sales allocations.
Several participants pointed out that the shortage of Group III base oils could ease later this year or early next, once the Neste-Bapco and Shell-Qatar Petroleum Group III plants in the Middle East reach full operations.
Whether imported volumes will slake U.S. buyers growing thirst for Group III is unclear. It is generally understood that Shells gas-to-liquids volumes will not be offered into the merchant market, but utilized internally, at least initially. However, many surmise that these GTL barrels will replace, and thus free up, Group III material that Shell now buys from other sources.
Be prepared for some rough patches heading into the last part of the year. There could be some overhang of certain base stocks, but extra volumes of the more desired cuts may still be hard to find.