Dwindling supply and potential product shortages appear to be of high concern to U.S. base oil buyers at the moment. The situation has been brought on by recent, ongoing and upcoming turnarounds, coupled with healthy spring demand.
In the API Group I segment, availability has dwindled on the back of a recent shutdown at Paulsboro Refinings New Jersey facility and the current turnaround at Calumets Shreveport, La., plant, which started on April 28.
Calumets Group I and II unit will be off-line until May 14, if the turnaround goes as planned. The unit can produce 4,800 barrels per day of Group I base oil and 7,000 b/d of Group II cuts, and the supplier acknowledged that some of its product shipments may see delays because of the outage.
Other producers said that they had received several calls from consumers and traders, looking for additional volumes as they were unable to secure extra cargoes from their regular suppliers. However, most producers were said to be on the same boat, with little extra material to offer.
Buying interest has been especially focused on the high-viscosity grades and bright stock, so much so that spot prices have moved up by about 20 cents per gallon since the beginning of the year. Bright stock spot price ideas, for instance, have climbed to around $4.20 to $4.25/gal, from numbers hovering close to $4.00/gal during much of the first quarter, according to market participants.
Within the Group II sector, an extended turnaround at the shared production facilities of Flint Hills Resources and Phillips 66 in Westlake, La. (known as Excel Paralubes), could really put a crimp in Group II availability. The unit is expected to undergo a 58-day turnaround starting in June – the longest maintenance program in the facilitys history, according to sources – but this could not be confirmed with the suppliers.
The two producers are currently unable to offer any spot cargoes, leading some buyers to look for alternative sources of base stocks, participants said. It was unclear whether Flint Hills Resources and Phillips 66 will be able to build inventories to meet all of their requirements during the turnaround.
It was also heard that Motiva is currently declining new business and has reduced its export volumes as well.
To top it all off, the added 25,000 barrels per day of Group II base oil from Chevrons new Pascaugoula, Miss., plant are apparently not going to become commercially available until early July, dashing expectations that the product would enter the market in late May or early June.
The tight base oil balance is not likely to change substantially until August, when production is expected to resume following the turnarounds, the new capacity comes on-stream and demand starts losing steam.
Upstream, West Texas Intermediate crude futures were on a downward trend on expectations that crude inventory levels would reach record highs in the U.S. this week.
WTI settled on the CME/Nymex at $99.50 per barrel on May 6, down $1.78 from a settlement at $101.28/bbl on April 29.
Brent crude was trading around $107.06 per barrel on the CME, down $1.92 from $108.98/bbl a week ago.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.