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June 12, 2019

Volume 2 Issue 24

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U.S. Base Oil Price Report

While base oil market conditions were deemed generally stable, participants were keeping an eye on production outages and transportation issues caused by severe weather in the Midwest.

Strong winds and heavy precipitation over the last two weeks resulted in historic flooding, critical damage to dams, and mandatory evacuations in several states, including Arkansas, Oklahoma, Missouri and Illinois. The floods left some towns virtually under water, and also disrupted industrial production and transportation in and out of the area, as it impacted railcar, truck and barge movements.

Hundreds of barges were stalled on the Mississippi River, causing a bottleneck on the region’s main transportation artery, while railways and highways have been closed as well, Transport Topics reported on its website.

As of June 10, 203 points along U.S. rivers were at flood stage, the majority of those on the Mississippi, Arkansas, Illinois and Missouri Rivers and their tributaries, according to the National Weather Service. The rain was expected to ease in the next few days across the central U.S., but forecasts called for storms to start again next week.

One of the base oil plants that was affected by the severe weather was HollyFrontier‘s API Group I unit in Tulsa, Oklahoma. The plant has capacity to produce 9,500 barrels per day of base stocks. HollyFrontier’s refinery was taken off-line for several days as a precautionary measure due to concerns about a potential failure of the levies, market sources said. If the refinery had flooded, it would have suffered extensive damage. The producer began the restart process of its Tulsa refinery on June 4, with base oil production anticipated to resume last weekend.

The plant outage came on the heels of other planned and unplanned domestic plant shutdowns and a steady stream of orders, resulting in snug supply of certain base oil grades. While current output was still deemed sufficient to cover requirements, fewer spot cargoes were available, with bright stock volumes in particular heard to be scarce. HollyFrontier was not expected to offer any spot shipments until the producer was able to catch up with existing orders and contractual obligations.

There has been no price deterioration given the recent tightening of supply, despite the softer crude oil and feedstock costs, and the ample availability of base stocks that can be used as substitutes for those that are in short supply, sources reported.

A number of buyers were heard to have contacted alternative suppliers in search of Group I grades as they were expecting delivery delays.

Business into Mexico was reported as steady, and the resolution of the tariff dispute between that country and the U.S. should spur slightly more activity, according to sources.

Upstream, crude oil prices stabilized on Tuesday on expectations that OPEC and its allies would continue to curb supply to prevent prices from declining amid a general economic slowdown. WTI and Brent crude futures have dropped almost 20 percent since reaching their 2019 highs in late April, weighed down by intensifying fears of an economic downturn that was expected to impact global oil demand.

The U.S. Energy Information Administration (EIA) reduced its forecasts for oil prices and U.S. crude oil production, according to the organization’s energy report published on Tuesday. The EIA predicts 2019 U.S. crude production will reach 12.32 million barrels a day, down 1 percent from the May forecast. For 2019, the government agency lowered its WTI crude price forecast by 5.6 percent to $59.29 a barrel and its Brent projection by 4.2 percent to $66.69.

On June 11, West Texas Intermediate July futures settled at $53.27 per barrel on the CME/Nymex and had closed at $53.48/bbl on June 4.

Brent futures for July delivery settled at $62.29/bbl on the CME on June 11, and had closed at $61.97/bbl on June 4.

Light Louisiana Sweet crude wholesale spot prices settled at $60.83/bbl on June 10, compared to $60.95/bbl on June 3, according to the EIA.

Low sulfur vacuum gas oil was at July WTI plus $16.75/bbl ($71.01/bbl); high sulfur VGO was at crude plus $17.75/bbl ($71.01/bbl) on June 10. By comparison, high sulfur VGO was hovering at $71.25/bbl and low sulfur VGO at $70.75/bbl on June 3, according to data published by OPIS PetroChemWire.

Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.

Posted Paraffinic Base Oil Prices

June 12, 2019

(Prices are FOB basis, in U.S. dollars per gallon and U.S. dollars per metric ton).

Lubes'n'Greases Publications shall not be liable for commercial decisions based on the contents of this report. 

U.S. Base Oil Price Report table

 

*ExxonMobil prices obtained indirectly.