Despite the fact that the U.S. base oil market is immersed in a summer lull, suppliers report fairly steady demand, accompanied by unchanged posted prices.
There has been little evidence in the market of any direct impact of the fresh introduction of API Group II oils from the new Chevron plant in Pascagoula, Miss., which was heard to be running well and reliably. The plant has a nameplate capacity of 25,000 barrels per day of Group II base oils.
Nevertheless, other producers have been concerned for quite some time about the pressure that the additional product might place on domestic supply levels and pricing.
Sources have already reported some competitive pricing movements in the spot market, and this trend is expected to become even more pronounced in coming weeks.
At the moment, the Group II segment appears to be fairly snug given the extended turnaround at the Excel Paralubes base oils plant in Westlake, La., which started in late June and was anticipated to last until the end of August. The unit can produce 22,200 barrels per day of Group II oils, and this output is shared by Flint Hills Resources and Phillips 66.
But there are reports that the plant may be restarted earlier than anticipated, as the turnaround has been going well. Although Flint Hills Resources and Phillips 66 have been striving to keep contract customers supplied during the outage, spot availability has tightened, but is expected to improve once the plant resumes production.
This is likely to occur around the same time that demand slows down at the end of the summer, although some sources pointed out that one more burst of activity was expected as packagers prepare product for the end-of-year oil changes before the winter season sets in.
In the Group I and III segments, suppliers report that activity is holding at steady levels and no significant fluctuations are expected until September or October, when requirements traditionally tend to weaken.
Activity has been on a constant course in the naphthenic base oil segment as well, although exports have been slightly less vibrant than usual. Participants expected prices to hold through the end of the year, barring any unexpected events such as a major outage, or a sharp swing in feedstock prices.
Some market players commented that base oils margins have improved marginally as crude oil and vacuum gas oil prices have eased.
West Texas Intermediate crude futures slipped for the sixth time in seven days on speculation that refineries will slow operations, leading to a reduction in demand. U.S. refiners usually schedule maintenance for September and October when gasoline demand declines.
WTI settled on the CME/Nymex at $97.38 per barrel on August 5, down $3.59 from a settlement at $100.97/bbl on July 29.
Brent crude was trading around $104.61 per barrel on the CME, down $3.11 from $107.72/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.