The summer season seems to be turning out much better for base oil producers than many had anticipated. Suppliers had been dreading the introduction of additional base oil from the new Chevron API Group II plant in Pascagoula, Miss., which was expected to materialize some time in July, following several delays to the original start-up date.
It turns out that, although the 25,000 barrel per day plant is up and running, the market will likely not see much of this oil until possibly late August or September as the producer needs to fill its lines of supply, according to sources.
The further delay, together with production hiccups and planned turnarounds at other base oil units earlier in the year, led to a fairly tight supply scenario during the summer, allowing suppliers to maintain stable pricing and even implement a number of increases in the Group I, II and II+ segments.
Aside from robust demand and recent turnarounds, supply was also snug because refiners, given high feedstock costs and weak base stock margins, had favored making fuel products throughout much of the years first half, to the detriment of base oil output.
Magnifying the tight situation, consumers and producers started to build inventories to prepare for any supply issues during hurricane season, which runs June 1 to Nov. 30.
However, the market could be flooded with product in the fall because volumes from Pascagoula are expected to reach buyers at about the same time that Excel Paralubes in Westlake, La. – which is shared by Phillips 66 and Flint Hills Resources – anticipates restarting its 22,200 b/d Group II unit, following a 58-day turnaround that commenced in June. This is likely to coincide with the slowdown in demand typically observed in the fall.
At this writing in mid-July, though, the base oil market remains fairly snug, with spot availability for certain grades said to be minimal. Market players may be able to enjoy the sweet rewards of summer for a few more weeks, but are well aware of the elemental forces that are likely to seal their fate when fall finally arrives.