U.S. base oil producers were grappling with divergent currents, as firming crude oil and feedstock costs exerted upward price pressure, while softer demand weighed values down.
Crude oil numbers have moved up over the last two weeks, but pared some of their early-week gains on Tuesday, as analysts tried to figure out whether increased oil production from Saudi Arabia and Russia would offset output disruptions in Libya and Canada.
WTI futures settled at $74.14 per barrel on the CME/Nymex on Tuesday, July 3, up $3.61/bbl from $70.53/bbl on June 26.
Light Louisiana Sweet crude wholesale spot prices settled at $76.39 per barrel on July 2, compared to $75.66/bbl on June 25, according to the U.S. Energy Information Administration.
Brent settled at $77.76/bbl on the CME on July 3, up $1.45/bbl from $76.31/bbl on June 26.
Low sulfur vacuum gas oil was at August WTI crude plus $11.75/bbl ($85.65/bbl) and high sulfur was at crude plus $10.25/bbl ($84.19/bbl) on July 2. By comparison, low sulfur VGO was hovering at $81.58/bbl and high sulfur VGO at $80.58/bbl on June 25, according to data published by PetroChemWire.
Despite the shorter work week due to the Fourth of July holiday on Wednesday, suppliers said that business had been more lively than anticipated, perhaps because buyers were concerned that the steeper crude oil values would exert pressure on postings in coming weeks, and were eager to beat any potential price changes.
However, the fact that the market has entered the slower summer season, and that activity in downstream lubricant segments tends to decline at this time of the year, was expected to partly dampen producers price ambitions.
Supply in the API Group I tier continued to be reported as tight, with several cargoes heard sold into Mexico and Brazil, and an inquiry from Nigeria expected to be fulfilled by a United States producer.
Availability in the Group II segment appeared to be slightly longer, but suppliers have been actively pursuing export opportunities, including requirements from Mexico and Brazil. Sources mentioned that a number of U.S. Group II suppliers had been in discussions with Mexican and Brazilian buyers regarding spot cargoes for July shipment.
Mexico held presidential elections last Sunday, with the leftist Andrs Manuel Lopez Obrador being elected in a landslide victory. Lopez Obrador promised the Mexican people that he would end corruption, reduce violence, and address the countrys poverty levels.
The election is not a major factor in lube oil demand, a source said, as no immediate effect was expected to be seen on the base oils and lubricants industry. However, it may take three or four months to see any changes, if there are any at all, the source added.
The Mexican base oil producer, Pemex, has experienced continuous output issues amid the countrys economic and political struggles, and it may take a while before operations are back to normal, sources said.
The U.S. Group III segment continued to see competitive activity as Middle East suppliers offered attractive pricing for material with partial approvals. Sources said that in some cases, there was a price difference of at least $2 per gallon for this material compared to that of fully-approved product, but noted that not all lube manufacturers and blenders could use these base stocks.
It was heard that a Middle East supplier was close to receiving full approvals for U.S. automotive applications and its prices were expected to line up with the other producers once the process was completed.
In other market news, Phillips 66 and Flint Hills Resources ceased to post prices on Lube Reports U.S. Price Table as of July 1. In lieu of these postings, Excel Paralubes introduced its own Gulf Coast posted prices on the same date, which is highlighted on this weeks price table.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase inExcel format.