The freezing temperatures that covered large swaths of the United States this week seemed to have a numbing effect on the base oils market, as activity remained largely muffled. Trading was also subdued due to the Martin Luther King Jr. Day holiday on Monday.
Producers expressed concern at the soft fundamentals that have characterized the base oils segment over the last couple of months, with sluggish demand and lengthening supply being the main factors weighing on pricing.
However, following downward price adjustments of 23-25 cents per gallon by four API Group II producers between Dec. 31 and Jan. 22, and decreases for naphthenic base oils, there were no further revisions to postings reported.
Most participants remained optimistic that requirements would start to pick up in February as downstream manufacturers place orders ahead of the busy spring lubricants season.
In fact, a number of suppliers mentioned receiving inquiries about volumes for the next two months. The U.S. market is still slow, but there are small signs of a pick-up in sales, a source noted.
Improved demand levels, together with upcoming plant turnarounds and potential production cutbacks at a number of base oil plants, could relieve some of the pressure on growing inventory levels.
In Group I and II circles, there was speculation that the ongoing shutdown at the largest of ExxonMobils crude distillation units in Baytown, Texas, would impact production of base oils, but current base oil operating rates could not be confirmed with the refiner.
Some players said that an output reduction would not have a significant impact as supply is more than plentiful. Sources also said the refiner has been offering cargoes on the spot market and there were no indications that its supply was tight, and in fact, some grades appeared to be oversupplied.
As far as product movements into Mexico were concerned, suppliers said that business had been steady, but that credit remained the biggest issue, with some delays in payments reported. The Mexican peso remained weak against the dollar, making import prices hefty when quoted in the local currency.
Volatile crude oil prices and economic indicators were also said to be impacting market activity, as many of the worlds top economies seemed to be slowing down.
Crude oil futures fell by three percent on Tuesday amid fresh concerns about a global slowdown, which would result in a decrease in oil and fuel demand. The International Monetary Fund cut its outlook for global economic growth to 3.5 percent in 2019 and 3.6 percent in 2020, 0.2 and 0.1 percentage points below last Octobers projections.
Meanwhile, China also reported that its official economic growth rate was 6.6 percent in 2018, the weakest reading since 1990, CNBC.com reported.
Crude futures and equities came under pressure in afternoon trading after the Trump administration canceled a meeting with Chinese counterparts to discuss the trade dispute between the two countries.
On Jan. 22, WTI February futures settled at $52.57 per barrel on the CME/Nymex, up 46 cents/bbl from $52.11/bbl on Jan. 15.
Brent futures for March delivery closed at $61.50/bbl on the CME on Jan. 22, and had settled at $60.64/bbl on Jan. 15.
Light Louisiana Sweet crude wholesale spot prices settled at $59.18/bbl on Jan. 18, compared to $57.11/bbl on Jan. 14, according to the EIA. There was no trading on Jan. 21 due to the Martin Luther King Jr. Day federal holiday.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase inExcel format.