US Group I heavy-viscosity base oils climb on tight supply

HOUSTON (ICIS)–US posted prices for Group I heavy-viscosity grades completed a round of increases, which could lead much of the rest of the market higher.

Posted prices from several producers on grades ranging from SN500 to SN600 moved up 20 cents/gal between 8 May and 15 May.

The increases were supported by tight supply of heavy-viscosity material, steady demand and rising feedstock costs tied to global energy markets.

The supply tightness has hit the increased grades, as well as the heavier brightstock grade, because of short supply in other global regions.

Posted prices for brightstock increased 10 cents/gal from mid-March to mid-April.

Given strong export levels of heavy material, US buyers and sellers said domestic consumption is mostly flat, as US buyers are not soaking up said material.

Increases in global energy markets have affected feedstock vacuum gas oil (VGO) prices as well, tightened available supply for base oils production as margins on other products are stronger.

However, the Group I increases are in contracts to Group II prices and prices for low- and mid-viscosity prices, which are holding steady.

Several sources said that those markets are better supplied and are not facing pressure from the demand side.

This has left energy and feedstock costs to be the main driver for price increases, but market players are hesitant regarding crude oil values.

Sources said the base oil market is holding out for US West Texas Intermediate (WTI) prices to firm in the mid-$60s/bbl before expecting price increases on heavy-viscosity Group II product or low- and mid-viscosity material.

Given recent volatility in the global crude oil market, several base oil participants said they are waiting to see where global production and pricing levels start to trend following the 5 June meeting of the Organization of the Petroleum Exporting Countries (OPEC).

The recent rebound in crude oil pricing has led to the removal of discounts in these markets, sources said, allowing sellers to keep margins healthy.

Major US producers of Group I base oils include Calumet, ExxonMobil, Holly Frontier and Paulsboro Refining (PRC).