The base oil market seems to be going through a transitional period between the slower winter months and the arrival of spring, with requirements starting to pick up, but not yet reaching the anticipated levels for this time of the year.
The lingering cold weather in many areas of the United States was thought to be impacting demand, while the plentiful availability of most grades was also said to be delaying purchases, as consumers did not appear to be in a rush to secure product since there were no shortages reported.
Nevertheless, buyers reported that supplies did seem to have dried up somewhat, and this could be attributed both to increased activity, and operating rates cutbacks at some facilities, although no confirmation of the latter was forthcoming.
We are heading into the busiest time of the year for demand, a market source said, adding that in the next eight to ten weeks, every suppliers tank car loading station will likely be filled, and barges will be heading up the Mississippi River. With flooding on the Ohio River causing delays, as well as maintenance on the river locks, barge delays will push back into tank cars, which, in turn, will push back into trucks. Demand and the logistics system will be stretched, the source concluded.
While some pockets of the market, such as the API Group I segment, are currently in better balance than the Group II or III segments, there is talk that supply in the Group II sector has diminished because of recent export shipments. There has been some speculation that a number of producers have trimmed operating rates as well, but this could not be confirmed.
Producers hoped that product requirement levels would continue to improve in coming weeks as the lubricant manufacturers prepare inventories for the summer driving season. For the time being, lube demand was described as flat to slightly higher than a month ago.
On the naphthenic base oils front, the San Joaquin Refining base oil plant in Bakersfield, Calif., was back on stream following a turnaround in February, and the plant was running well. All products are in inventory ready to ship, a company source confirmed.
Although no general price changes have been announced within the naphthenic sector, it was heard that a producer had raised export spot prices into a number of accounts on the back of escalating production and raw material costs.
Market participants were indeed keeping a vigilant eye on crude oil prices, as futures jumped to their highest level this month on Tuesday, boosted by Saudi Arabias pledge to continue to limit oil supply by keeping its April crude oil exports at below 7 million barrels per day, despite requests for more than 7.6 million b/d of Saudi oil from its customers.
A major blackout in Venezuela disrupted the countrys oil production and exports, offering additional support to oil futures.
On March 12, West Texas Intermediate April futures settled at $56.87 per barrel on the CME/Nymex, up 31 cents/bbl from $56.56/bbl on March 5.
Brent futures for April delivery closed at $66.67/bbl on the CME on March 12, and had settled at $65.86/bbl on March 5.
Light Louisiana Sweet crude wholesale spot prices settled at $65.09/bbl on March 11, compared to $64.45/bbl on March 4, according to the Energy Information Administration.
Low sulfur vacuum gas oil was at Apr. WTI plus $14.50/bbl ($71.29/bbl) and in parity with high sulfur VGO at crude plus $14.50/bbl ($71.29/bbl) on March 11. By comparison, low sulfur VGO was hovering at $70.59/bbl and high sulfur VGO at $71.34/bbl on March 4, according to data published by PetroChemWire.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase inExcel format.