While some segments of the U.S. base oil market remain quite active, others have fallen into a state of suspended animation, as participants are awaiting developments related to the introduction of additional barrels to the supply system.
According to the latest reports, API Group II base stock from Chevrons new Pascagoula Base Oil Plant in Mississippi will ship to customers starting on Aug. 1. Initially, only the light-viscosity grades are expected to be available, with the heavier cuts reaching the market at a later date.
Market participants said that Chevron had been offering competitive prices for the product coming out of the new plant to entice buyers. The other producers are concerned that customers would use these quotes to negotiate lower pricing with their regular suppliers, particularly as availability of Group II cuts is expected to outpace demand the remainder of the year.
Buyers have taken a wait-and-see stance and have limited the amounts of product they are purchasing, a couple of suppliers commented.
At the same time, the current turnaround at the Excel Paralubes base oil plant, whose output is shared by Flint Hills Resources and Phillips 66, is likely to keep the Group II sector in balance through early September, as the plant is not anticipated to be brought back on stream until late August.
The Excel Paralubes base oil unit in Westlake, La., can produce 22,200 barrels per day of Group II oils and customers have been assured that they would still be receiving product under contract, but most participants are also aware that no extra supplies are available.
Meanwhile, Group I producers observed that demand remains healthy and supply of the high-vis cuts – bright stock in particular – is still tight, helping maintain prices on firm ground.
Some imported high-vis base oil was expected to arrive into the United States in the next few weeks. The cargoes were thought to be from Asia, but a specific origin could not be ascertained. The fact that imports of heavy-vis cuts have been concluded seems to confirm that availability on the domestic market remains snug and prices are strong.
Calumet was heard to be approximately one week away from being completely caught up on back orders. The producer has been striving to fulfill customers requirements as scheduled, following a turnaround at its Group I and II plant in Shreveport, La. unit from mid-April to mid-June, but some deliveries have experienced delays. The facility can produce 4,800 b/d of Group I oils and 7,000 b/d of Group II cuts.
Group I material is also said to be tight in Mexico, leading to price increases implemented by the local producer, Petroleos Mexicanos (Pemex) in recent weeks, source said.
Upstream, West Texas Intermediate crude traded near the lowest level in two months as it appears that Iraq has been able to maintain supply, despite the insurgency, and Libya expects to increase exports after the reopening of two of its ports.
WTI settled on the CME/Nymex at $99.96 per barrel on July 8, down $3.44 from a settlement at $103.40/bbl on July 8.
Brent crude was trading around $106.02 per barrel on the CME, down $2.92 from $108.94/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.