The base oil market blazed into the new year, propelled by sizzling crude oil futures and a fairly snug supply-and-demand scenario.
Crude prices registered two-year highs the first week of January, perpetuating the ascending trend that had started in late September 2017. Geopolitical tensions in the Middle East, together with an OPEC-led extension of production cuts, caused West Texas Intermediate futures to breach the $60 per barrel mark the first week of 2018.
Base oil margins were squeezed by the higher raw material costs, and values were also buoyed by a balanced-to-tight supply scene, which was rather unusual as stocks are typically plentiful at the beginning of any given year. A slowdown in demand during the months leading to the December holidays generally results in ample inventories and the need for producers to lower prices in order to entice buyers.
However, given the serious product shortage brought about by hurricanes and floods during the second half of 2017, certain base stock grades were much less accessible in January than during the same month in years past.
A couple of routine shutdowns exacerbated the snug conditions. HollyFrontier prepared for a turnaround at its API Group I plant in Tulsa, Oklahoma, scheduled for the second half of February. On the naphthenics side, San Joaquin Refining entered 2018 with limited product to offer, as the producer shut down its plant in Bakersfield, California, for maintenance in late January.
The soaring oil and feedstock costs, coupled with the tight supply situation, prompted base oil producers to seek price increases in early January.
Motiva led the way with an initiative that lifted the companys Group II base oil postings by 10 cents per gallon on January 5, while the rest of the paraffinic producers followed with increases in the realm of 10 to 22 cents. Group III suppliers sat this round out, while naphthenic producers raised prices by 20 cents per gallon across the board.
At the time of printing, market conditions were expected to remain heated for several weeks, and participants anticipated the embers to be rekindled when lubricant manufacturers started to bolster their requirements ahead of the busy spring production season.