Spot prices for US paraffinic base oils reach 17-month high

18 May 2010 22:50  [Source: ICIS news]

HOUSTON (ICIS news)--Spot prices for US paraffinic base oils rose to a 17-month high for the second half of May and were strengthening further for June due to supply shortages caused by planned and unplanned outages, sources said on Tuesday.

Bright stock was trading at $3.57-3.67/gal ($1,053-1,083/tonne, €853-877/tonne) during the first half of May, according to data from global chemical market intelligence service ICIS pricing. 

Spot prices for bright stock had not been over $3.50/gal since January 2009.

Offers for June delivery were quoted at $3.97/gal, which is the ExxonMobil posted price. Smaller volumes were offered above $4.00/gal, a buyer said.

Typically, buyers can get a discount off the posted prices, but tight supply has narrowed the gap between posted and spot prices, a seller said.

“The spot market in the US is a pretty bleak environment,” a US refiner said. “All the suppliers are tight, buyers are on allocation. Large and small-volume buyers are having to look toward Europe for material because there is simply not enough available in the US right now.”

The US paraffinic base oil spot market has been tight all year due to reduced rates at refiners and maintenance turnarounds during the first quarter.

Although demand for the sector improved during the second quarter, production woes multiplied.

“Of greatest concern to players is the issue at Motiva, an allocation from the largest Group II supplier is a serious issue,” a buyer said. “Motiva has put it buyers on 50-75% allocation because of a production issue at Port Arthur [Texas], and there is no time frame on this either.”

Motiva did not immediately respond to a request for comment regarding the 41,000 bbl/day Port Arthur base oil refinery in Texas.

A shortage on the Group II base oils led several buyers to look to Group I and III base oils as alternatives, but the Group I base oil supply remained roiled in its own hiccups.

“You can’t find good quality Group II on the US spot market,” a trader said. “And if you do find Group I, it will be a premium to posted prices.”

Ergon shut its Newell refinery in West Virginia on 11 April for a four-week scheduled maintenance. Ergon’s Newell plant produces 1,900 bbl/day of Group I base oils and 2,900 bbl/day of Group II base oils. The refiner was planning to restart on Wednesday, but said inventories were very low.

American Refining took its crude unit out of service for a few days earlier this month, but was back on line and production was back to normal, a company source said. The Bradford refinery in Pennsylvania produces 2,100 bbl/day of Group I and 300 bbl/day of Group II material.

The refiner said that demand for bright stock had been extremely brisk, and it was not able to entertain any new spot offers immediately.

($1 = €0.81)

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By: Heather McGuire Doyle
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