Tight supply continues to support generally stable base oil pricing in the United States, although there is talk that some discounting is taking place in the API Group II+ segment.
Market sources said that a Group II+ producer had been granting very competitive numbers, sometimes well below posted Group II prices, and that this could be reflecting difficulties in finding outlets for this slate of oils. According to one player, Group II+ material may be trumped in quality by Group III base oils, especially as the industry tries to meet more stringent quality demands and lubrication specifications to support advanced engine designs.
Meanwhile, buying interest for Group III cuts remains healthy and at levels expected for this time of the year, with supply deemed balanced against current domestic requirements. Suppliers also said that there had been some inquiries from traders looking for product for export.
Within the Group I segment, the heavy-viscosity cuts are particularly snug on the back of trimmed base oil output earlier in the year – due to steep feedstock vacuum gasoil (VGO) prices and increased fuel production at the time – coupled with weather-related plant issues.
Additionally, the recent turnaround at Paulsboro Refinings New Jersey plant and the current shutdown at Calumets unit in Shreveport, La., were exacerbating the situation.
Calumets plant is expected to remain off-line from April 28 until May 14 for a routine maintenance program. The unit has the capacity to produce 4,800 barrels per day of Group I base oil and 7,000 b/d of Group II cuts.
A seller said it had received several calls from buyers and traders looking for Group I spot material, and that many were finally starting to realize how tight the market had become.
A similar situation applies to the Group II sector, where finding extra material is proving difficult as well. Interestingly, a Group II players comment mirrored the one made by its Group I peer: I believe Group II is much tighter than what the market is letting on, the source said.
Group II demand was characterized as healthy, and although there has been a slight slowdown since March, product is still moving at the usual spring season levels.
Nevertheless, suppliers were heard to be striving to meet contractual obligations, and a few of them are staying away from the spot market at this point.
Flint Hills Resources and Phillips 66 were understood to be building inventories to cover contract commitments during a planned turnaround at their Westlake, La., 22,200 b/d Group II plant scheduled for June/July, according to sources. The suppliers were heard to be refraining from offering spot cargoes altogether, but this could not be confirmed with the suppliers directly.
Motiva was also heard to have little to no spot volumes, as the supplier is focusing on fulfilling contract requirements, and its product availability is not expected to improve by the time the Flint Hills Resources and Phillips 66 plant is taken off-line.
Sources also pointed out that despite expectations that the new Chevron Group II plant in Pascagoula, Miss., would be producing commercial product in early May, there could be further delays in the start-up process.
Upstream, West Texas Intermediate crude futures traded on higher ground on speculation that supplies would have been drawn down at Cushing, Oklahoma, and on a weakening of the U.S. dollar.
WTI settled on the CME/Nymex at $101.28 per barrel on April 29, down 85 cents from a settlement at $102.13/bbl on April 22.
Brent crude was trading around $108.98 per barrel on the CME, down 29 cents from $109.27/bbl a week ago.
Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.