The API Group I segment appears to have moved into the spotlight this week, with supply described as extremely tight and buyers encountering difficulties in locating spot cargoes within the U.S. system.
While most of the domestic business is typically conducted under contract, there are a few export opportunities for suppliers to offer product on a spot basis, as long as availability is ample and there are extra cargoes beyond those needed to cover contractual obligations.
This does not seem to be the case at the moment, as reports painted a rather snug picture for Group I supply of all grades, even bright stock, which was considered to be readily available earlier this year.
A combination of supply outages in the United States and Europe, together with steady demand from Mexico, Brazil and the Middle East, have led to overall tight conditions within the U.S., as well as in Europe. There have been inquiries from just about all over the world, a supplier commented.
As a result, Group I spot prices have moved up, with some published indices said to have edged up by 5 to 7 cents/gal for the SN150, and about 7 cents/gal for bright stock week-on-week. Given these increases, it was difficult for Mexican buyers looking for competitive prices to find any good deals, sources noted.
With Group I barrels hard to come by, Group II spot volumes have attracted additional attention from those consumers who can use these oils in certain Group I applications, and consequently, spot levels were strengthening in that tier as well. The added requirements only intensified conditions as the Group II segment was already tight because of strong domestic demand, sources said.
However, while the general perception is that U.S. Group I producers are sold out, each week, one or two cargoes appear on the scene because a deal may not have gone through, sources added.
Downstream, several finished lubricant manufacturers were heard to be in the process of implementing price increases in a range of 4 to 10 percent. Activity in the lubricants segment has been somewhat subdued as is expected for this time of the year – It is just a cycle, a supplier commented – but there are signs that business is starting to pick up.
This was partly attributed to the fact that the second wave of lubricant price increases since the beginning of the year was being implemented, and customers were procuring heavily prior to the hikes taking effect.
In terms of base oil production, it was heard that the HollyFrontier Group I plant in Tulsa, Oklahoma, was still shut down for a turnaround and was not expected to come back on stream until next month. The unit can produce 9,500 barrels of Group I oils per day, and the producer has built inventories to cover obligations during the turnaround.
There were also reports that a crude oil unit will be taken off line at the Chevron refinery in Pascagoula, Mississippi, in mid-April, but this was not expected to affect base oil production. The same crude unit was heard to have experienced technical issues last week, but was back up, and there had not been any impact on base oil output, sources said. The Pascagoula plant can produce 25,000 barrels of Group II base oils per day, according to LubesnGreases’ Global Guide to Base Oil Refining.
In other industry news, Chemlube has been appointed as the distributor for resale of BAPCO BAPbase Group III base oils in 2018, with no restricted territory. North America is a primary target market, and an aggressive campaign to gain appropriate API approvals is underway, sources familiar with the matter said. Chemlube will be carrying BAPbase 4cst, 6cst, and 8cst inventory in the U.S. from early April onwards.
Upstream, crude oil prices fell in volatile trade on Tuesday, as a significant increase in U.S. shale oil output and falling equity markets weighed on futures.
U.S. crude production is expected to rise above 11 million barrels per day by late 2018, taking the top spot from Russia, according to the International Energy Agency.
On Tuesday, March 13, West Texas Intermediate futures settled at $60.71 per barrel on the CME/Nymex, down $1.89 cents/bbl from $62.60/bbl on March 6.
Light Louisiana Sweet crude wholesale spot prices settled at $63.50 per barrel on March 12, compared to $64.54/bbl on March 5, according to the U.S. Energy Information Administration.
Brent was trading at $64.64/bbl on the CME on March 13, down $1.15/bbl from $65.79/bbl on March 6.
Low sulfur vacuum gas oil was at April WTI plus $12/bbl ($73.36/bbl) and high sulfur VGO was at crude plus $10.75/bbl ($72.11/bbl) on March 12. By comparison, low sulfur VGO was hovering at $74.57/bbl and high sulfur VGO at $73.57/bbl on March 5, according to data published by PetroChemWire.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.