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July 3, 2019

Volume 3 Issue 9

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U.S. Base Oil Price Report

Chevron announced a price increase this week, which came as a bit of a surprise since participants expected the market to remain fairly low-key ahead of the Fourth of July holiday.

Chevron communicated that effective July 2, the company would be increasing its API Group II base oil prices by 20 cents per gallon, "to reflect current market conditions," a company source explained.

The increases were thought to be driven by steeper crude oil and feedstock prices over the last few weeks, coupled with a tightening of Group II availability within the domestic supply system. No other initiatives surfaced by close of business on Tuesday.

Reports pointed at healthy demand, adjusted operating rates and unforeseen production problems as the probable causes behind the snug conditions in the Group I and II segments. "Domestic sales are very strong," a supplier noted, adding that orders had been on the slow side earlier in the year, but had "definitely picked up" in June.

A second supplier mentioned receiving early shipment requests and inquiries from buyers who are not regular customers in search of extra base stocks, perhaps in an effort to beat potential price increases, or secure extra barrels due to the prevailing tightness.

It was also heard that product requirements from Mexico were steady, and that suppliers were encountering good business opportunities in Brazil.

While export activity has not been as robust as earlier in the year because some countries in Europe and Asia are currently well-supplied to over-supplied, spot prices were stable given limited extra barrels in the United States.

Stable conditions were also reported on the naphthenic side, with steep crude oil and raw material prices and steady demand underpinning the current price structure.

While crude oil values had been on an upward trek over the last week, oil futures fell by about 3 percent on Tuesday, despite the agreement reached by OPEC and its allies, including Russia, to extend supply cuts until next March. Prices were pressured by weak manufacturing data, which could be a sign of slowing global economic growth and an accompanying decrease in oil demand.

On July 2, West Texas Intermediate August futures settled at $56.25 per barrel on the CME/Nymex and had closed at $57.83/bbl for July futures on June 25.

Brent futures for September delivery settled at $62.40/bbl on the CME on July 2, and had closed at $65.05/bbl on June 25.

Light Louisiana Sweet crude wholesale spot prices settled at $63.38/bbl on July 1, compared to $62.93/bbl on June 24, according to the Energy Information Administration.

Low sulfur vacuum gas oil was at WTI plus $15.75/bbl ($74.84/bbl) and high sulfur VGO at crude plus $15.25/bbl ($73.34/bbl) on July 1. By comparison, low-sulfur VGO was hovering at $73.65/bbl and high-sulfur VGO at $73.90/bbl on June 24, according to data published by OPIS PetroChemWire.

Market players have also been keeping an eye on developments related to the implementation of the International Maritime Organization (IMO) 2020 rules on January 1, which require the sulphur content of fuel oil used by vessels operating outside designated emission control areas not to exceed 0.5 percent – representing an 80 percent cut from the current 3.5 percent limit.

Ship owners and operators have expressed concerns about the adequate availability of low-sulphur bunker fuels next year, but the International Energy Agency forecast that refineries would have capacity to make the compliant fuel oil available. The question on most industry players' mind was whether marine fuel prices were likely to shoot up once demand increased.

In other industry-related news, major automakers posted mixed U.S. sales results for June and the second quarter, with demand for SUVs and pickup trucks still showing healthy growth, and passenger car sales reflecting a long-running decline, Reuters reported on Tuesday.

 

Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format