The start of coronavirus vaccination campaigns and prospects of a return to travel and other activities in 2021 offered a glimmer of hope to the market as the year-end drew near. After months of gridlock, the United States Senate finally passed an economic relief package, which was also welcome news and was quickly reflected in climbing crude oil numbers.
Participants expected market conditions to remain challenging for at least the first half of the year. Supply was anticipated to be tight as refineries continued to run at reduced rates and were likely to do so until demand for refined products such as gasoline and jet fuel improves.
A return to pre-COVID 19 business travel, manufacturing and other undertakings would lead to an increase in fuels and lubricants consumption, sources said. However, the emergence of a mutant strain of the virus in the United Kingdom threw a shadow on some of these prospects.
Demand for heating oil has increased with the arrival of winter, and this has led refiners to maximize distillate runs, while vacuum gas oil demand has climbed and prices have firmed.
There are also a couple of turnarounds scheduled for the first few months of the year, and this will likely lead to strained availability of base oils, leaving limited volumes for spot business. HollyFrontier and Calumet were heard to be preparing inventories to cover contractual obligations during their turnaround in the first quarter, but this has been difficult to do since demand has been steady, leaving no additional supply for spot business.
Spot base oil prices have been on the rise, driven by a tight supply and demand balance, higher posted prices and healthy buying appetite from the export sector, particularly for cargoes moving to India, Brazil and Mexico.
Posted prices have moved up on the back of increase initiatives implemented by paraffinic and naphthenic base oil producers.
On the paraffinic side, API Group I, II, II+ and III postings have increased by 20, 25, 26 and 30 cents per gallon, depending on the grade and the producer, with effective dates peppered between Dec. 7 and Dec. 16. In most cases, the heavier viscosity grades have seen the most significant markups given the current tightness. In the case of the Group II+/III grades, producers adjusted prices up twice between November and December.
On the naphthenic front, producers nominated increases of 20, 25 and 30 cents/gal that went into effect between Dec. 1 and Dec. 18. The price hikes were also fueled by a snug supply/demand scenario and climbing crude oil and production costs.
A couple of naphthenic producers were understood to have planned turnarounds in the first quarter of 2021, which will lead to a further tightening of supply. Naphthenic producers typically end the year with extra availability as demand tends to decline in November and December, but this has not been the case this year.
Reports of price adjustments for downstream finished lubricants, greases and additives emerged during the week, with several lubricant manufacturers heard to have communicated increases between 8% and 15% to be largely implemented during the second half of January. The price adjustments were triggered by rising base oil prices and other related costs, such as transportation.
Chemlube International communicated that the supplier would be increasing prices by 8-12%, with an effective date of Jan. 18.
Omni Specialty Packaging confirmed that the company had announced a price increase of 10-15%, which will go into effect on Jan. 22.
Other manufacturers that were heard to have communicated finished lube price adjustments include Pinnacle Oil, Warren Distribution, Old World Industries, Advanced Lubrication Specialties and Safety-Kleen.
Upstream, crude oil futures had climbed over the course of the week as vaccination campaigns were rolled out, but slipped in early trading on Tuesday on concerns about a new strain of the coronavirus that was detected in the U.K. The possibility that this strain could spread to other parts of the world and lead to strict lockdowns again exerted downward pressure on prices.
However, some analysts remained optimistic that the newly approved coronavirus vaccines would still offer immunity to the new strain and further restrictions could be avoided.
On Tuesday, Dec. 22, February 2021 WTI futures settled at $47.02 per barrel on the CME/Nymex, while Jan. futures had closed at $47.62/bbl on Dec. 15.
Brent futures for Feb. delivery settled at $50.08/bbl on the CME on Dec. 22, from $50.76/bbl on Dec. 15.
Light Louisiana Sweet crude wholesale spot prices closed at $49.69/bbl on Dec. 21 and had closed at $49.02/bbl on Dec. 14, according to the Energy Information Administration.
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Historic and current base oil pricing data are available for purchase in Excel format.