It is difficult to keep track of how many price decrease notices the U.S. base oil consumers have greeted since October. Just when one round of price drops was complete – with a vast majority of producers climbing aboard the general movement – another supplier would step out with a notification, spurring yet another string of downward revisions.
One of the most recent waves of reductions saw Holly Frontier and Calumet post hefty cuts of 45 cents per gallon for all API Group I grades except bright stock, which fell by 35 cents in late December. Group II postings were lowered 50 cents to 65 cents, while Group II+ and III cuts dropped 40 cents per gallon across the board.
These adjustments followed very closely a similar spate of revisions in November and early December that had yielded drops of 10 cents to 41 cents per gallon for Group I, II, II+ and III base stocks, depending on the supplier and the grade.
In the naphthenics camp, producers have also been busy adjusting prices on the heels of plummeting crude oil and feedstock prices. In early December, Ergon, Calumet, Cross Oil and San Joaquin sliced pale oil prices by 20 cents per gallon. That followed an earlier iteration of price adjustments, when most naphthenic producers lopped 25 cents per gallon off the light grades and 20 cents off the heavies, except for San Joaquin, which marked down values by 20 cents across the board.
In the fast-changing pricing environment that appears to be the new normal, sources on the buy side said they would not be surprised to see more price adjustments, given the current combination of oversupply, slowing orders, and – most importantly – the need to remain competitive.
Most sellers are concerned that the supply overhang will not ebb away. In fact it may get worse, as additional volumes are expected to stream from ExxonMobils Group II/II+ expansion in Baytown, Texas, early this year.
But nobody can blame producers for holding out hope that, come February and March, fundamentals may improve slightly. Thats when blenders start to pad inventories for the busy spring production season, and suppliers inventories typically have been drawn down by reduced run rates and routine turnarounds during the winter.