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Suppliers see no basis for price discounts in August
US Paraffinic Base Oil Overview
Base oil prices were holding up firmly during the first week of the month, with suppliers pointing to upstream costs and recovering inventories as underpinning factors that offer little-to-no basis for price discounts in August.
Suppliers said crude oil and vacuum gas oil (VGO) prices kept the latest round of increases in place, while the domestic spot market remains skimpy and US exports continue to be absent.
Although West Texas Intermediate (WTI) crude oil futures dropped on Tuesday, as price indicators below show, suppliers said the Brent numbers maintained strength and again mentioned that WTI was increasingly becoming an outlying element in tracking crude oil costs.
Group I supply-demand fundamentals were described as balanced, with US demand said to be softening going into the second half of the year.
Some sources described US demand as flat, while others viewed the softening factors as being more pervasive and characterised it as plainly weaker.
Motiva’s restart of its 15,000 bbl/day Group II base oil train was said to be already having a positive effect. The supplier was said to be actively moving material into the market, meeting requirements and staunching the drain on Group I light viscosity inventories that have been pulled in meeting needs during Motiva’s downtime.
However, supply-demand conditions were not considered to be trending toward fuller supply, rather they were described as meeting requirements.
Group II and II+ supply-demand features were still considered to be tight, with Group II more nearly at balance and II+ more snug.
Suppliers also mentioned that Chevron was planning to take a major 45-day full maintenance turnaround at its 20,000 bbl/day Group II Richmond, California location, with the whole complex scheduled for downtime.
Market sources said the 22,200 bbl/day Group II Excel Paralubes location at Westlake, Louisiana, (Flint Hills Resources and ConocoPhillips) was also scheduled to take a 45-day turnaround in January-February, unconfirmed by the company.
These turnarounds were additional factors underscoring suppliers’ stance on current levels for spot price sentiment and regarding firm posted prices.
Group III market attention remained focused on sharply limited supply that continued to curtail spot business in the US.
Market participants also watched for signs of start-up at Shell’s 28,800 bbl/day gas-to-liquids (GTL) base oils units.
Mixed indicators commanded the potential start-up at the Qatar GTL location, as some sources indicated that at least one base oils train was operational, while most other sources said the base oil units were unlikely to be operational until mid-2012, earliest.
Shell did not comment.
In Asia, the unplanned shutdown at Formosa Petrochemical’s Mailiao refinery stymied much of the clatter about lower base oil prices evolving in the region.
Formosa produces 9,800 bbl/day of Group II base oils at the location, according to industry sources.
The 540,000 tonnes/year petrochemical complex was said to be entirely shut down because of a fire over the weekend.
Sources said Formosa cancelled all its spot and term Group II base oil loadings scheduled to load after the first week of August. According to regional sources, about 45,000 tonnes were planned for export in August – expected to be contracted volumes, but not specified as such.
Price Indicator Update
On Tuesday, 2 August, Nymex September futures for West Texas Intermediate (WTI) finished down $1.10, ending the day at $93.79/bbl, while Brent September showed a scant $0.35 downward shift, ending at $116.46/bbl.
The US crude benchmark WTI close was pulled down by a sell-off on the stock market in response to released data showing a drop in consumer spending and worries that the US credit rating may still be downgraded, despite the agreement in Washington to raise the debt ceiling.
US price indicator chart
| Price Indicators | 2 August | 26 July |
| West Texas Intermediate (WTI) Crude Oil | $93.79/bbl, $2.23/gal | $99.59/bbl, $2.37/gal |
| Natural Gas | $4.155/MMBtu | $4.370/MMBtu |
| Low Sulphur Vacuum Gas Oil | $128.04/bbl, $3.05/gal, | $130.59/bbl, $3.11/gal |
| High Sulphur Vacuum Gas Oil | $121.79/bbl, $2.90/gal, | $125.09/bbl, $2.98/gal |
| Fuel Oil (3%) | $105.25/bbl, $2.51/gal | $102/bbl, $2.43/gal |
| No.2 Low Sulphur Diesel (USG) | $131.04/bbl, $3.12/gal | $129.78/bbl, $3.09/gal |
| 3-2-1 Crack Spread | $34.34/bbl | $32.27/bbl |
Europe and Asia Overview
With a view on both Europe and Asia, the base oils markets were mixed. Up/down price sentiment abounded in each of these global regions.
US sources continued to describe the global market as tight, with arbitrage windows wavering toward opening but not quite getting there. Asia-to-US arbitrage continued to trend toward attraction, but no Asian parcels for the US were detected.
In Europe, buyers and sellers remained in a price stand-off, as buyers continued to expect prices to fall and sellers were not convinced that fundamentals and upstream costs warranted changes.
European buyers were watching supply building in the Baltic and Black Sea regions, with another price drop logged in on the export ranges this week.
Baltic Sea exports for SN150 and SN500 lost $20/tonne overall to a $1,290-1,330/tonne FOB Baltic spread. Black Sea was assessed at FOB $1,260-1,290/tonne, shedding $10/tonne on both sides of the previous range.
Elsewhere in Europe, however, the price stand-off was firm in Group I and II, while Group III prices in NWE strengthened because of limited supply.
The holiday season was underway in Europe, muddling price perspectives as this also served to thin out export activity.
In Asia, uncertainties founded upon the aforementioned shutdown at Formosa’s Mailiao refinery caused some participants to expect that Group II supply in Asia might tighten significantly if the shutdown is extended.
The refiner furnishes about 40-50,000 tonnes of Group II base oils to term customers each month, according to sources.
Alongside the evolving uncertainties in Group II, weaker demand in China and the Motiva restart in the US yielded a mixed price perspective for the region, with spot ranges steady and unchanged this week.
Naphthenic
PDVSA posted changes effective on 9 May
The naphthenic base oil segment supply-demand fundamentals were described as largely balanced, with no changes in the spot price range assessments.
Suppliers said that, although inventories were refreshed after falling sharply down because of planned and unplanned outages, spot business was minimal and price levels representative within the spreads shown above.
Additionally, suppliers pointed out that price increases in the naphthenics had lagged the increases in the paraffinic segment, although the plague of outages had affected both segments.
Other
Lukoil’s 345,000 tonne/year production unit at Nizhny Novogrod and the 480,000 tonne/year Perm units were said expected to go into a 20-day maintenance turnaround in early September. The turnaround was expected to counter-balance the supply build-up in the region against subdued demand.
SK Lubricants was said to be planning to take an October maintenance turnaround at its 350,000 tonne/year Group III facility in Indonesia.
Shipping
Ship brokers and traders confirmed August base oils shipments were thin-to-absent for first half August, with the pervasive reason continuing to be a globally tight market that has not budged much except in the Russian Baltic and Black Sea areas.
No fresh fixtures or enquiries were noted for the US deep-sea market.
Europe and Asia both showed base oil enquiries within regional port origins and destinations. The only fixture detected being a 2,500 tonne base oil parcel moving from Augusta to Greece plus Cyprus for early August load dates that eventually failed on subs, according to sources.
Paraffinic Base Oil Postings Changes
Group I:
ExxonMobil, 19 May
100: +27
150: +27
300/350: +27
600: +27
BS: +27
Holly, 20 May
70: +27
100: +27
150: +27
250: +30
500: +27
BS: +30
Calumet, 27 May
700: +30
BS: +30
PRC, 24 May
100: + 27
150: +27
500: + 27
700: + 27
BS: + 27
Group II:
ConocoPhillips, 25 May
70: +30
75/80: +30
100/120: +30
200/220: +30
600: +30
Chevron, 23 May
100/120: +30
200/220: +30
600: +30
Motiva, 10 June
70: +50
100/120: +55
200/220: +50
600: +50
Calumet, 27 May
75/80: +30
100/120: +30
145/150: +30
300/350: +30
Flint Hills Resources, 6 June
70: +30
75: +30
100/120: +30
200/220: +30
600: +30
Group II+:
ExxonMobil, 19 May
110/130: +37
190: +32
Motiva, 10 June
110/130: +55
SK Lubricants, 27 May
YUBASE 3 (70/80): +55
ConocoPhillips, 25 May
50/60 (Ultra-S2): +45
70/80 (Ultra-S3): +55
Group III:
SK Lubricants, 27 May
4 cSt: +55
6 cSt: +55
8 cSt: +55
ConocoPhillips, 25 May
4 cSt (Ultra-S4): +40
8 cSt (Ultra-S8): +55
Group III+:
SK Lubricants, 27 May
YUBASE 4 plus: +55
South America:
PDVSA, 23 May
85: +17
100: +17
150: +31
300/350: +38
500/550: +46
BS: +17
NOTE (1): Exxon posted prices were not obtained directly from ExxonMobil, but from other industry sources. Also, a 2 cent/gal discount is applicable for waterborne.
This week on ICIS ( www.icis.com ):
01/08/2011 09:49 Taiwan’s Formosa shuts 540,000 bbl/day refinery after fire
01/08/2011 14:34 US Valero closes acquisition of Chevron’s Pembroke, UK refinery
29/07/2011 21:32 Transatlantic rates fall in both directions on oversupply
29/07/2011 18:55 Chevron urges ‘stable policies’ as US debt crisis drags on
27/07/2011 21:27 ConocoPhillips acknowledges ‘uncertainty’ about JVs on split-up plan
