30 December 2013 16:32 [Source: ICIS news]
By Judith Taylor
HOUSTON (ICIS)--US base oil price trends at the end of 2013 largely reflect the slow but steady pace of recovery in the domestic economy and the drab condition of the global economy.
The trends have dominated the fourth quarter and remain prevalent at year-end.
Domestic spot prices wavered amid a cautious fourth-quarter market that heralded the low tone of December price sentiment.
A spate of hefty discounting against posted prices dragged spot prices down in most grades, with the heavy viscosity oils in both Group I and Group II taking the brunt of the fall.
At mid-November Group I SN 600 heavy viscosity oils fell 22 cents/gal in the US domestic spot market, assessing at $3.37-3.47/gal FOB (free on board) US Gulf Coast going into the end of the month and the beginning of the seasonal holiday slowdown in December.
Group II light viscosity spot business for export options was assessed at $3.02-3.20/gal FOB US Gulf Coast, shedding about 10 cents/gal off the upper end of the spread.
The chart below shows base oil spot price direction in 2013.
In spite of buyers pressuring suppliers for overall price reductions, Group I and Group II posted prices remained stable during November and December.
Base oil production decisions are positioned at the refinery level, with margin comparisons between base oil production and fuels as a constant focal point.
Refiners’ options to move crude oil processes toward more fuel production and slow down base oil output is an ongoing process that allows wider inventory balancing choices.
Although US demand was routinely described as good, it was also considered to be routinely standard. Buyer purchases were cautious in the fourth quarter, showing as much hesitation to hold inventories as shown on the supply side.
Additionally, supply in light viscosity base oil grades began to show some length in both Group I and Group II tiers.
Group III was also discussed as becoming more readily available, although it continues to be described as moving in contract volumes, with no recognised domestic spot tier developing in 2013.
Another factor defining the fourth quarter and underpinning market caution is the potential effect likely to be wrought by the start-up of Chevron’s Pascagoula Base Oil Plant (PBOP) that will usher in 25,000 bbl/day of Group II base stock production.
Chevron earlier in the year confirmed that it is targeting mechanical completion of the facility by year end 2013, and market participants expect it to move into commercial output in the latter part of the first quarter of 2014.
However, by the second half of December, Chevron had not confirmed that PBOP was in fact in mechanical start-up.
The late December US base oil market is largely steady, but rumbles continue about Group I and II discount potentials, keeping some downward pressure on spot prices, especially in the light viscosity grades.
This trend is persisting toward the first quarter of 2014 as buyers’ perception of a full supply factor is gaining an upper hand and keeping a tilt on fundamentals.
The table below shows price indicator changes between October and mid-December that also tend to support lower price ideas. There is, however, uncertainty among US base oil players concerning whether or not crude oil prices will remain under the $100/bbl mark in the first quarter of 2014.
17 December 2013
1 October 2013
Fuel Oil (3%)
No 2 Low
($1 = €0.73)
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