Chevron stepped out with a price increase just before close of business on Tuesday; this move was not completely surprising, as whispers that steeper crude oil and feedstock costs were placing pressure on base oil prices had grown louder over the last few days.
Chevron will be increasing its API Group II 100R and 200R grades by 20 cents per gallon, and its 600R by 10 cents/gal to reflect the higher feedstock prices, with an effective date of April 25.
Whether other suppliers will be following Chevrons lead was not clear, but a number of participants observed that if producers were considering price hikes, this would likely be their last chance to implement changes before the summer doldrums set in.
A few market participants who had just returned from the Independent Lubricant Manufacturers Association Management Forum in Fort Lauderdale, Florida, noted that while a couple of producers appeared to be ready to set price changes in motion, others were taking a more cautious approach and were waiting for the upward movement on the raw material side to be sustained for a few more days before seeking any revisions. This hesitation may be partly linked to the current supply/demand balance for paraffinic base oils, the sources added.
Fundamentals between the paraffinic and naphthenic segments seemed to be slightly different. Availability of most paraffinic grades was said to be adequate and there were no product shortages noted, although the Group I tier was still described as snug. Persistent buying interest for export volumes added to the tightness, sources said.
Base stock buyers were under the impression that supply in general had started to lengthen as requirements seemed to be winding down, with the summer season just around the corner.
A couple of suppliers lamented that demand this spring had not been as strong as in years past, and while inventories had been fairly lean in February and March, stocks had started to bulge in April.
Counter to conditions on the paraffinic side, naphthenic base oil supply was deemed tight due to healthy demand in recent weeks, which placed pressure on pricing. The narrative is more around demand than supply issues, or even rising raw material costs, a source commented.
While rumblings about upward pressure on current pricing continued in this segment of the market, pale oil values remained unchanged this week.
Meanwhile, a majority of market participants were keeping a close eye on crude oil developments. Crude futures reached new highs during the week, but fell on Tuesday after President Donald Trump said the United States and France could soon reach an agreement to preserve the Iran nuclear deal.
Oil prices had been lifted by OPEC-led supply cuts, at a time when demand in Asia–the worlds biggest oil consuming region–has risen to a record as new and expanded refineries start up in the area.
On Tuesday, April 24, West Texas Intermediate futures settled at $67.70 per barrel on the CME/Nymex, up $1.18/bbl from $66.52/bbl on April 17.
Light Louisiana Sweet crude wholesale spot prices settled at $70.51 per barrel on April 23, compared to $69.41/bbl on April 16, according to the U.S. Energy Information Administration.
Brent was trading at $73.86/bbl on the CME on April 24, up $2.28/bbl from $71.58/bbl on April 17.
Low sulfur vacuum gas oil was at June WTI plus $13.50/bbl ($82.14/bbl), and high sulfur VGO was at crude plus $12.25/bbl ($80.89/bbl) on April 23. By comparison, low sulfur vacuum gas oil was hovering at $79.22/bbl and high sulfur VGO at $74.47/bbl on April 16, 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.