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July 31, 2019

Volume 3 Issue 4

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U.S. Base Oil Price Report

The base oil market appeared to have drifted into a summer slumber, as buying activity has slowed down and prices remained flat.

While a number of suppliers reported steady requirements, they acknowledged that they had adjusted expectations to the time of the year when demand typically declines as participants are away on holiday, and most purchase needs have been covered in the previous weeks.

Lubricant consumption during the summer months increases, but base oil sales traditionally peak in the spring in preparation for increased activity in the finished lubes sector, and then subside in the following months.

Nevertheless, sellers appeared optimistic in that pricing was holding at fairly stable levels since some segments were still slightly tight in terms of product availability, and this offered support to current pricing. This was the case for most light grades, sources said. Conversely, spot prices in segments such as the heavy-vis cuts were starting to fray as inventories were rising.

Exports movements have also experienced a slowdown, with appetite for API Group I/II cargoes from Mexico seen as ongoing, but not particularly robust. There were discussions of possible shipments of Group I/II base stocks to India as well. India regularly imports Group I base oils from Iran, but the current international sanctions on Iranian exports have thwarted shipments to India. A large cargo of Group I base oils was also heard to have been shipped from the U.S. East Coast to Nigeria.

There were reports that domestic refiners may be trimming operating rates at base stock plants in order to attain more balanced positions and stream more feedstocks into the production of diesel, allowing for better margins. Details on current rates were not available as most producers hesitate to disclose production information.

The pricing initiatives started by Chevron – first an increase on July 2, and then a decrease on July 23 that effectively neutralized the hike – did not elicit a strong reaction from the market last week.

Participants were mostly concerned about the possibility that crude oil prices would shoot up, should the tensions in the Middle East lead to a temporary closure of the Strait of Hormuz. Market analysts noted that Iran has the capability to meaningfully disrupt tanker traffic in Hormuz for a significant period, possibly leading to a spike in crude prices.

The United States has asked Germany to take part in a United Kingdom-proposed, European-led naval mission to protect ships sailing near Iran, following recent incidents involving tankers in the area. Meanwhile, Iran and Russia were planning a joint military drill in the Persian Gulf and the Strait, several news outlets reported.

At the same time, floating oil storage in Iran has become a ticking bomb for crude markets, OilPrice.com reported. Crude oil in floating and onshore storage in Iran has exceeded 110 million barrels, adding that the number of barrels in floating storage specifically had increased almost twofold over the last two months. Should these barrels be released into the market at some point, they would make prices plummet, analysts said.

Crude prices moved up on Tuesday on an American Petroleum Institute report of a larger-than-expected crude inventory draw of 6.024 million barrels for the week ending July 25, compared to analyst expectations of a much smaller, 1.818-million barrel draw.

On July 30, West Texas Intermediate September futures settled at $58.05 per barrel on the CME/Nymex and had closed at $56.77/bbl on July 23.

Brent futures for September delivery settled at $64.72/bbl on the CME on July 30, and had closed at $63.83/bbl on July 23.

Light Louisiana Sweet crude wholesale spot prices settled at $61.50/bbl on July 29, compared to $63.12/bbl on July 22, according to the Energy Information Administration.

Low sulfur vacuum gas oil and high sulfur VGO were at Sep. WTI plus $15.25/bbl ($72.12/bbl) on July 29. By comparison, low sulfur VGO and high sulfur VGO were both hovering at $70.97/bbl on July 22, according to data published by OPIS PetroChemWire.

 

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