U.S. base oil suppliers are prepared for strong activity during May, as customers continue to beef up their requirements week to week, and out-strip the orders placed in March and thus far in April. Although producers overall inventory positions appear to be well balanced, they said orders over and above already scheduled volumes can likely be fulfilled. Sellers warned, however, that if demand becomes much more brisk, then not all customer requests may be satisfied as May gets under way.
Meantime, fresh export possibilities have emerged in deep-sea destinations. While Europe remains the quietest region, U.S. sellers of both paraffinic and naphthenic grades have seen openings for shipments to India, Middle East, and South America.
It is understood from U.S. suppliers that they will only entertain these possibilities if – firstly – all their contract obligations are covered. Furthermore, there seems to be not much room to negotiate spot prices lower, according to sources. Low-ball offers heard only weeks ago have since been taken off the table, buyers bewailed. In fact, spot offers are now pegged to be at or in some cases above contract business, depending on product and volume.
With regard to domestic pricing, API Group I, II and some II+ postings had increased by late March, but it wasnt until April that additional Group II+ and Group III moved. The hesitant producers finally decided to jump on the band wagon, completing a round of price hikes that had commenced in mid-February.
A handful of players had not expected higher prices for Group III, since the market appeared oversupplied with these premium base oils. Oddly, once the news about the price hikes reached the market in early-to-mid April, the same sources claimed to be not so surprised. All producers have been dealing with rising operating costs this year, they elaborated, and vacuum gas oil – a key feedstock and pricing component – remains at a stiff premium over West Texas Intermediate crude of around $30/barrel.
The mood is set for a lively May, as both sellers and buyers welcome the month with open arms in anticipation of intensified activity.