Chevron said on Tuesday that it will increase its U.S. Gulf Coast 600R base oil price by 15cts/gal to $3.15/gal, but it will keep prices unchanged for the other two grades.
The price adjustments reflect the prevailing market demand and supply, the company said. The latest price cut will be effective on Wednesday.
The price of the 100R grade remains at $2.65/gal, and the 220R grade is at $2.80/gal.
Base oils are the building blocks used to manufacture motor oils and other lubricants for consumer and commercial use.
Chevron began to post Gulf Coast base oil for the first time in September 2014 after starting up a new 25,000-b/d base oil plant at its Pascagoula, Miss., refinery in late July.
Besides the Gulf Coast, Chevron also sells base oil in the West Coast market, but Chevron is no longer posting prices on the West Coast.
Chevron's supply on the West Coast is supplied by its Richmond base oil plant.
Chevron also produces base oil at a joint-venture refinery in Yeosu, South Korea.
Barclays Capital said on Tuesday that it is too early to draw any conclusions on whether the gasoline market could face an imminent collapse given its high stock levels which in turn could lead to substantial under-performance of the refiners.
However, the bank believes the gasoline market will remain strong due to stronger-than-expected international and domestic demand. Also, the rising U.S. gasoline inventory is perceived as not in excess, and the U.S. gasoline market is facing expensive octane values.
The U.S. market is currently short octane. In other words, despite the currently very high CBOB inventories, the industry will have difficulties to quickly convert the excess CBOB into finished gasoline, the bank said.
"We believe the U.S. gasoline market has gone through a full 360-degree turn in octane supplies. Before 2005, the U.S. market historically was short octane," the bank said.
Between 2005 and 2011, the octane balance has shifted toward excess supplies due to the rising ethanol usage in the U.S. gasoline market, it said.
However, the octane balance has once again turned after 2011 due to rising Eagle Ford production, Barclays said.
Since half of Eagle Ford oil production is actually lease condensate which has a very high naphtha yield, the rising Eagle Ford production has led to increasing volumes of naphtha being blended into the gasoline pool, particularly since the plunge of oil prices from last June.
Traditionally, naphtha is used as a feedstock into the reformer and correspondingly converts into reformate, the high octane gasoline blending component.
"Because we think the industry has already maxed out the usage of the reformers, the continued rise in naphtha supplies will need to be blended directly into the gasoline pool without the reformer," the bank said.
While it is certainly possible, this direct blending will require additional octane supplies.
In the winter, because of the less stringent vapor pressure requirement, the octane shortage is not a major issue since the refiners have been able to acquire additional octane via the blending of butane.
On the other hand, as the industry shifts to the summer grade standard, this has become increasingly a problem in recent years, it said.
The lack of octane means that refiners will have difficulty quickly converting the excess CBOB into finished gasoline.
This explains the widening seasonal volatility of gasoline crack between the third quarter and fourth quarter as well as fourth quarter and first quarter over the last couple years.
"Our hypothesis seems to be supported by the U.S. changing octane values over the last several years. We isolate the market value of octane by taking the average price difference between premium and regular gasoline," Barclays said.
The average differential in 2010-2012 was $0.25/gal, $0.32/gal between 2013- 2014 and the 2015 year-to-date differential is $0.39/gal.
Eventually, the blendstock components will have to make their way into finished products, so higher blendstock inventories now could potentially exert downward pressure on gasoline prices in time, the bank said.
But overall, gasoline cracks will remain strong due to strong domestic demand (according to the latest DOE revision, first quarter gasoline demand rose 3.4% year-on-year) and the lack of octane which suggests that the pace of blending CBOB into finished gasoline may take longer than expected.
Also, looking at RBOB, current inventories are not in excess of their normal levels, thus adding to the bank's optimism.
The bank also believes the international gasoline market is stronger than expected.
Price inversions between branded and unbranded gasoline supply and terminal outages have begun to crop up at rack locations across Tennessee following a weekend power outage and resulting operational issues at Valero's 190,000-b/d Memphis refinery.
Market sources have yet to connect the refinery woes with any severe shortages, but OPIS Real-Time Rack data showed that as of Tuesday evening Valero had raised unbranded-gasoline prices above branded offerings at terminal locations in Memphis, Chattanooga, Knoxville and Nashville -- typically a hallmark of supply problems.
Such inversions typically represent a protective move by suppliers, who, in times of crimped supply, tend to concentrate efforts on ensuring branded- gasoline customers receive an uninterrupted delivery of fuel.
As previously reported by OPIS, Valero initially notified customers on June 8 that unbranded sales of gasoline would be cut off until further notice, although it was not known as of Wednesday afternoon whether that policy was still in effect and how far-reaching the directive might extend.
A Valero spokesperson on Tuesday declined to comment on the status of Memphis- area refinery and supply operations.
Several counties in the Memphis and Nashville areas require a 7.8-lb. RVP gasoline through mid-September, and it is those areas that could be most affected by any prolonged production issues at Valero's Memphis refinery, as the more stringent specifications would be most difficult for the plant to produce if gasoline production has indeed been impacted.
Davidson, Rutherford and Wilson counties, including the major Nashville hub; and Shelby, Sumner and Williamson counties, covering the Memphis metropolitan area, all require a 7.8-lb. gasoline spec from June through Sept. 15, according to the U.S. Environmental Protection Agency (EPA). As of Tuesday evening, Valero unbranded 7.8-lb. RVP gasoline prices were posted as higher than branded at the company's terminal in Memphis, while Marathon, CITGO and Shell 7.8-lb. offerings were all showing a similar inversion at terminals in Nashville.
At present, terminal outages are restricted to a few unbranded suppliers of 9.0- lb. RVP fuel, with Lion Oil posting out of product in Memphis; Noble posting out in Chattanooga; and Musket and Noble posting out in Knoxville.
Valero's Memphis refinery is critical to in-state supply, and is also the primary source of fuel for parts of eastern Arkansas and northern Mississippi as the region remains isolated to an extent from markets in the central Midwest and Gulf Coast. Due to a lack of pipeline connectivity, resupply sourced from outside the state stands to be restricted to barge deliveries from Gulf Coast port origins to Mississippi River offload destinations, although trade sources note that the supply situation would have to be very dire for such a transport move to occur.
Overall, the extent to which the region might be impacted is entirely dependent upon the length of any production issues at Memphis, state marketers contend.
"Refiner has the most skin in the game," said one supplier. "When there's an extended [issue] it can cause a big problem."
A little over a year ago, an extended production cut at Valero's Memphis plant caused chronic supply outages in the city and across neighboring states, forcing some wholesalers to source replacement fuel through the use of long-distance trucking from Arkansas and other out-of-state areas.
U.S. retail gasoline average prices are at the lowest since 2009 heading into Memorial Day weekend, according to the Energy Information Administration on Friday.
Drivers on the Gulf Coast will enjoy the lowest retail gasoline average prices, compared with the rest of the country.
On May 18, the U.S. average retail price for gasoline was $2.74/gal, or $0.92/gal lower than at the same time last year.
This is the lowest average price heading into the Memorial Day weekend -- the traditional start of the summer driving season -- since 2009.
Lower gasoline prices reflect lower crude oil prices, with the spot price of North Sea Brent crude oil at more than $45/bbl lower than the same time last year, despite having increased more than $10/bbl since the beginning of February.
Average retail prices for all regions of the country are below the level at the same time last year, even in the West Coast region, where supply disruptions pushed gasoline prices to $3.51/gal on May 18, $0.77/gal higher than the U.S. average.
Average retail gasoline prices are lowest on the Gulf Coast (PADD 3), at $2.47/gal on May 18. Gulf Coast gasoline prices are often lower than the U.S average, as the region is home to half of the U.S. refining capacity but a smaller share of gasoline demand.
In the May Short-Term Energy Outlook (STEO), EIA projects the U.S. monthly gasoline price to average $2.68/gal in May, and then decline as refineries in California resolve outages and refineries in the rest of the country increase production of gasoline.
EIA projects regular gasoline retail prices to average $2.51/gal during the third quarter of 2015.
Because of the Memorial Day holiday on Monday, EIA's next weekly survey of retail gasoline and diesel fuel prices will be published on May 26, one day later than normal, but they will still reflect Monday morning prices.
About a year after buying Hess Corp.'s East Coast bunkering business, Aegean Marine Petroleum Network is suing Hess, in New York Supreme Court in Manhattan, claiming misrepresentation of marine fuel sales and margins for that business.
Aegean Marine is seeking $28 million in compensatory damages, claiming breach of contract, almost the same price of $30 million that it paid Hess for its East Coast bunkering business, according to court documents.
In addition to the $30 million purchase price, Aegean paid an additional $110 million for oil inventory. The deal was completed on Dec. 19, 2013, and the lawsuit filed against Hess was on Dec. 18, 2014.
The litigation process remains ongoing.
That bunker business transaction, which includes bunkering operations that averaged 1.8 million metric tons in annual sales over the past three years, is valued at $30 million plus the value of the purchased inventory and also includes approximately 250,000 cubic meters of leased tank storage, Aegean said in 2013.
This acquisition marked Aegean's entry into supplying customers in the U.S. and enabled Aegean to meaningfully expand its global full-service marine fuel platform and increased its exposure to U.S. clients worldwide, including leading cruise lines.
Aegean had expected to utilize these East Coast bunkering operations and associated assets to supply the heavily trafficked ports of New York, Philadelphia, Baltimore, Norfolk and Charleston.
In the court documents, Aegean said that it discovered the financial information on the bunkering business provided by Hess did not in fact accurately represent the sales and margins, and the information contained material misrepresentations and material omissions that resulted in an inflated value of the bunkering business.
This in turn led to an inflated purchase price paid for that business to Hess by Aegean Bunkering, Aegean claims.
Aegean claims that Hess' financial information overstated its sales by including income related to Hess' Port Reading bunker business (about $2.1 million) despite Hess excluding that business from the sale to Aegean.
The "misleading" inclusion of the Port Reading financials in the sales information overstated the average annual income generated by the bunker oil business by about $700,000, Aegean claims.
Hess also excluded costs related to "Excess Logistics" and "Other/Timing Impacts," Aegean claims. The average annual amount of these costs was about $39.6 million. About one-third of these costs should have been allocated to the bunker oil business, which would have resulted in about $13.2 million in additional annual costs compared with what was represented, Aegean claims.
Hess also excluded tankage costs associated with its marine gas oil business. Hess did so because it ran a separate distillate business.
Nevertheless, Hess knew and should have known that Aegean would have to incur such costs upon its acquisition of the bunker oil business, Aegean claims. The marine gas oil tankage cost is about $952,000 per year.
Besides the $28 million claim against Hess, Aegean is requesting that Hess pay attorney's fees and costs.
Meanwhile, Hess is now predominantly an upstream company after divesting most of its downstream assets.
“I liked the detail presented that is necessary to understand the complexity of the business. Major points were stressed time and time again to reinforce the message. This course provided me the tools to take back to my job and use to increase our profits AND buy smarter to reduce my customers cost.”
“Topics were current and relevant. Speakers were great and very knowledgeable. Thanks to the education I have received over these past two days, I can return to work and speak intelligently with our fuel buyer. Now I know the right questions to ask!”
“Tons of information! If you’re newer to the industry this will cover most of the basics and then some. Be prepared to listen and learn!”
“As a new buyer, the information provided in this conference provided me with the tools to successfully negotiate with suppliers.”
“I thoroughly enjoyed this class. It was fast-moving, informative and we learned a ton! Scott & Dolores were terrific speakers.”
“Excellent job. I will definitely improve my company’s bottom line.”