Base Oil Pricing Report

Base Oil Report


The base oil market slipped into an easy-going summer mode in late July and early August. Demand reflected a seasonal slowdown, and posted prices underwent little fluctuation, with the exception of a decrease in late July.

Chevron communicated a price cut of 20 cents per gallon for all of its API Group II base stocks on July 23, effectively rescinding the 20-cent price increase it had posted on July 2.

Reacting to the news, participants commented that increases are generally difficult to implement in the summer because product requirements tend to decline and inventories start to build, placing downward pressure on prices.

Base oil producers also received a bit of a respite when crude oil and feedstock prices softened during the first few days of August, influenced by an escalating United States-China trade dispute and a potential decrease in global oil demand.

While the summer is typically a time for relaxation and carefree pursuits, there was underlying anxiety among market participants related to the ongoing hurricane season, which runs from June 1 to November 30.

Numerous base oil plants are located on the U.S. Gulf Coast, which is vulnerable to tropical storms. In August and September 2017, hurricanes Harvey, Irma and Mariadevastated large swaths of the Southeastern U.S. and the Caribbean, forcing many refiners to halt production and causing a temporary but significant base stock supply shortage and logistical issues.

Most industry participants prepare for hurricane season by padding inventories and shipping additional product to storage located away from areas prone to severe weather.

If a major storm were to cause damage to facilities and disrupt output, then supply could tighten, exerting upward pressure on pricing.

On the other hand, should no events upset production by the end of the hurricane season, then there should be plenty of supply and finished lubricants to cover requirements in the final months of the year.

At the time of writing, conditions in 2019 resemble those that characterized the market last year when nothing happened (to quote an industry insider)-a far better situation than what occurred in 2017 when natural disasters caused significant disruptions.

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