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August 7, 2019

Volume 3 Issue 3

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U.S. Base Oil Price Report

Despite a seemingly serene market scenario – with stable pricing and no production issues reported – there was some anxiety among base oil market participants related to the ongoing hurricane season.

The Atlantic hurricane season runs from June 1 to Nov. 30; the Atlantic basin includes the Atlantic Ocean, Caribbean Sea, and Gulf of Mexico, according to the National Oceanic and Atmospheric Administration.

Numerous base oil plants are located on the United States Gulf Coast, which is extremely vulnerable to tropical storms. In August and September 2017, Hurricanes Harvey, Irma and Maria devastated large swaths of the Southeastern U.S. and the Caribbean, forcing many refiners to halt production and causing a temporary, but significant base stock supply shortage and transportation disruptions.

“I sense everyone will wait through hurricane season to see how supply/demand fares through mid-September,” a market source noted. Most suppliers and many consumers prepare for hurricane season by padding inventories and shipping additional product to storage located away from areas prone to being hit by severe weather. If at the end of the hurricane season there have been no events to disrupt output – which participants hoped would be the case –

then there will be plenty of supply and finished lubricants in the market, sources explained.

For the time being, a majority of base oil plants were heard to be running well, although there were some reports of a couple of units not running at full rates, but “more details were not available,” a source said. Other players commented that margins have improved as crude oil prices have pulled back, and that it made no sense to cut back on production when plants were making good margins.

Product availability is manageable, with the API Group I segment continuing to see some tightening, particularly for the mid to heavy-viscosity grades and bright stock, and the Group II and III categories better supplied. No posted price changes emerged during the week, with spot numbers also described as fairly stable.

Activity on the naphthenic side of the business was also steady, although slightly weaker than a month ago, with prices showing little fluctuation.

Export activity remained subdued, with some low viscosity products moving into Mexico for the fuel markets, a source said. There were also some opportunities for Group I exports into India being investigated, but little if any Group II shipments appear to be moving there as prices are too low, according to sources.

Participants were also watching developments related to the U.S.-China trade dispute with great concern. Last Thursday, U.S. President Donald Trump threatened to impose an additional 10 percent tariff on $300 billion worth of Chinese goods, which would mean that almost all products imported to the U.S. from China would be subject to tariffs.

China did not seem to be changing its stance either, and the Beijing government let its currency, the yuan, depreciate to more than 7 to 1 with the U.S. dollar, a strategy believed to counter the effects of trade tariffs.

A large draw in U.S. oil inventories was unable to boost crude oil futures, which plummeted to below $54 per barrel last Thursday, Aug. 1, following Trump’s announcement. Crude oil futures were significantly down on Tuesday on the escalating U.S. and China trade dispute and signs of the resulting weakening demand growth. The Energy Information Administration reported that it was adjusting down its global oil demand growth forecast for 2019 to 1 million barrels per day.

On Aug. 6, West Texas Intermediate September futures settled at $53.63 per barrel on the CME/Nymex and had closed at $58.05/bbl on July 30.

Brent futures for October delivery settled at $58.94/bbl on the CME on Aug. 6, and had closed at $64.72/bbl for the September strip on July 30.

Light Louisiana Sweet crude wholesale spot prices settled at $58.73/bbl on Aug. 5, compared to $61.50/bbl on July 29, according to the EIA.

Low sulfur vacuum gas oil and high sulfur VGO were both at September WTI plus $15.50/bbl ($70.19/bbl) on Aug. 5. By comparison, low sulfur VGO and high sulfur VGO were hovering at $72.12/bbl on July 29, 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