US base oil supply tightens on seasonal buying - sources

29 July 2009 19:06  [Source: ICIS news]

HOUSTON (ICIS news)--US paraffinic base oil spot prices have edged up 2-3% due to a recent seasonal surge in buying already-tight supply, but players are not sure whether the increased demand will last, sources said on Wednesday.  

Bright stock oil on the spot market was assessed up 5 cents/gal ($15/tonne or €11/tonne) to $2.71-2.81/gal, according to data from global chemical market intelligence service ICIS pricing.

Spot prices have been gradually moving up since the last round of posted price hikes announced by US sellers earlier this month.

Sellers said there has been strong demand for every grade, and because some of their customers had taken more volume in July than originally forecast, many supply holders were nearly sold out.

“While contract commitments are being met, little material is available on the spot market, espescially higher viscosity oil, which is very tight,” a seller said. “What little spot material is available is offered at a premium.”

The recent spurt of buying could be short-lived, however, since it was due mainly to hurricane planning, and not to a rise in demand, another seller said. Buyers were working on contingency plans following supply constraints left by Hurricanes Katrina and Rita in 2005 and Hurricane Ike in 2008, he added.

“We are buying plenty of base stock now to produce finished lubes and ship across the country before the hurricane season becomes the strongest - in August and September,” a large buyer said. “Our demand for base stocks has certainly picked up and will remain steady through August.”

Demand requirements were also strong from Mexico, where the major seller, Pemex, recently came back online from a turnaround at its 6,000 bbl/day Salamanca base oil plant in Mexico, a trader said.

However, buyers said the lift in demand might not last to the end of the third quarter, and a seller noted that even with the boost to demand, volumes have yet to reach levels equal to previous years.

Refiners are continuing to run base oil plants at reduced operating rates - around 75-80% of capacity - as they have for most of 2009 due to better profitability for other refined products, a buyer said.

($1 = €0.71)

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By: Heather McGuire Doyle
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