December 4, 2019
Volume 3 Issue 4
U.S. Base Oil Price Report
It appears that the strategies implemented by a number of producers to manage inventories at a time when supply tends to lengthen worked, as availability in a few segments has tightened and discounts seemed less prevalent.
Aside from the usual campaigns to offer discounts and other incentives to promote sales, a couple of turnarounds at API Group I/II plants and increased fuel production to the detriment of base oil output have also helped lower inventory levels.
As a result, the markdowns and temporary voluntary allowances that had become quite widespread a few weeks ago were said to have dwindled, particularly on the domestic front. “The discounts seem to have dried up some – especially for domestic use,” a source agreed, although some incentives continued to be offered into the export segment as competition remained high.
While the Group II segment had been long earlier in the quarter, the situation has evolved, with suppliers commenting that they were sold out of a couple of grades such as the low-viscosity cuts and the 600N. There was still decent supply of mid-vis cuts, sources said. Prices were also receiving support from firm feedstock and crude oil numbers.
A similar situation applied to the Group I sector, where the lighter grades and bright stock showed limited availability. This was partly attributed to the recent turnaround at HollyFrontier’s plant in Tulsa, Oklahoma, and Calumet’s ongoing maintenance program in Shreveport, Louisiana.
Calumet scheduled a two-phase turnaround at its Group I/II plant, with the second part starting on December 1 and affecting production of the company’s light-vis cuts (60, 80, 100, 150 vis) only. The shutdown was expected to last approximately two weeks. The producer already completed the first phase of the program, which affected its mid to heavy-vis cuts (325, 600, 2500 vis) in early November. The producer had built inventories ahead of the shutdown to meet contractual obligations.
Participants also reiterated that the increase in driving during the Thanksgiving holiday did not yield a fresh pickup in demand, as deliveries of lubricants to cover these requirements were completed a while back. “Fifty-one million people driving has no effect – yes, some will change their oil if driving over 200 miles each way, but that oil has already been delivered some time ago in anticipation of this event,” a source explained.
The market was generally described as “slow-to-steady,” with small peaks of activity and spot discussions expected following the ICIS Pan American conference taking place Dec. 4-6 in Jersey City, New Jersey.
Buyers noted that raw material prices have remained fairly high throughout the year and margins continued to be squeezed, which is why they welcomed the typical markdowns at the end of the year.
Exports into Mexico have slowed down, both on the naphthenic and paraffinic segments, after a fairly hectic third quarter, but a few transactions were anticipated to be concluded before the year-end holidays. Naphthenic suppliers said that demand from Asia was still healthy, while several United States cargoes of paraffinic base oils were bound for India and South America.
In terms of exports to Europe, participants were hoping that upcoming European Commission discussions would result in either a substantial increase of the import quota under which Group II base oils may be imported without a tariff, or a complete removal of tariffs. While many saw the continuation of the quota for next year as a positive sign, given that there had been talk of a potential cancellation of the quota thereby exposing all imports to duties, they noted that 400,000 metric tons per year was not enough. There were also many questions as to how the quota would be implemented, and whether certain countries would continue to enjoy exemptions due to existing trade agreements as is the case at the moment.
It was also heard that it was still early days to notice any impact from the worldwide implementation of the new IMO 2020 regulations, which require that vessels use fuel with a lower sulfur content as of Jan. 1. Sources said that the increase of demand for this type of fuel might trigger changes in how producers run their refineries and what products they might prioritize, consequently affecting base oil output.
Upstream, crude oil futures regained some territory, following a sharp decrease seen last Friday, with crude oil for February delivery increasing over one percent after plummeting 5.1 percent to $55.17 a barrel on Dec. 29.
The oil price rebound was fueled by reports that Saudi Arabia wants OPEC to raise oil production cuts so as to anchor oil prices before Saudi Aramco’s initial public offering.
OPEC and other oil producers will be discussing production quotas at a meeting this week, and there are expectations that an additional 400,000 barrels per day would be added to existing cuts of 1.2 million bbl/day.
Oil prices also received support from optimistic Chinese manufacturing data, which helped alleviate concerns about the impact of the ongoing U.S.-China trade dispute.
On Tuesday, Dec. 3, West Texas Intermediate Jan. futures settled at $56.10 per barrel on the CME/Nymex, and had closed at $58.41/bbl for Dec. futures on Nov. 26.
Brent futures for February delivery were reported at $60.82/bbl on the CME on Dec. 3, and had closed at $64.27/bbl for January futures on Nov. 26.
Light Louisiana Sweet crude wholesale spot prices settled at $59.97/bbl on Dec. 2 and had closed at $62.92 on Nov. 25, according to the Energy Information Administration.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.