U.S. Base Oil Price Report

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Sudden bursts of activity surprised sellers in some segments of the market, ushering in what was otherwise expected to be a fairly quiet week due to the Thanksgiving holiday on Nov. 25.

It was not clear what had prompted a number of buyers to step into the market to procure product ahead of the holiday – perhaps concerns of a potential tightening of supply, or an increase in manufacturing rates at downstream lubricant plants as raw materials gradually became more available.

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Many lubricant and finished products plants have suffered disruptions given a shortage of additives and other raw materials, along with transportation issues due to a lack of drivers, railcars and vessel space. While the situation was not yet at optimal levels, participants said that conditions were slowly improving. An additive producer was scheduled to resume production this week, following a turnaround, which might help ease the additive scarcity.

Indeed, large car manufacturers were returning to full production rates after several months of production hiccups and a shortage of components such as electronic chips. Toyota announced that its car production was back on track, with all plants and production lines in Japan scheduled to operate normally in December for the first time in seven months, Automotive News reported. Toyota said that all 14 plants and 28 production lines in Japan will be “operating normally” for the first time since May. The company’s global production was expected to reach 800,000 units in December, up from 760,000 units the same time last year as the company was striving to recoup output from the disruptions caused by the pandemic.

One of the places where base oil activity was surprisingly healthy was the Mexican market. “Two weeks ago, orders were down, but last week, everyone was buying base oils – close to normal and not at any real discounts,” a source commented, while another conceded that Mexican demand was holding at fairly steady levels, despite expectations of a sharp drop during the last few weeks of the year. Sources added that perhaps inventories had been run down as buyers held out for lower prices, and buyers needed to replenish stocks to manufacture lubricants and meet post-year-end holiday demand.

Other sources mentioned that yearly contract negotiations between consumers and suppliers were ongoing and perhaps this had triggered concerns about future availability. Most buyers seemed keen to increase the volumes purchased under contract to have guaranteed supply and be less exposed to sharp spot price fluctuations, sources explained. “There are some concerns about supply, but not like four or six months ago,” a source noted, adding that additional product was expected to become available between Dec. 15 and Jan. 15, as this tends to be the slowest time of the year in .terms of demand. This trend was also expected to keep exerting downward pressure on spot prices.

In the United States, a majority of base stock segments were regaining a more balanced supply and demand state, but a few pockets remained tight. Participants mentioned the heavy viscosity grades within the Group I and II segments as being snug, with demand not letting up too quickly.

Bright stock was definitely more available than earlier in the year, when extra supply was non-existent, and spot prices have therefore edged down over the last few weeks. Most Group I and Group II grades have suffered downward spot price revisions between 5 cents per gallon and 7 cents/gal given the lengthening supplies. With the resumption of output at a Group I refinery last week, more Group I volumes were expected to hit the market in the next few weeks.

Group II supplies were also lengthening, but producers have resorted to exporting the surplus material to destinations such as India in order to minimize a product overhang. Export prices for Group I and II base oils were said to have moved down, with decreases between 5 cents/gal and 7 cents/gal heard to be possible, although not widely reported.

The Group III 4 centiStoke grade was described as short, with consumption outpacing supply. There were unconfirmed reports that a regional producer had suffered some production setbacks, which had contributed to the tightening of supplies, although this could not be confirmed. Importers were working hard at trying to meet requirements and said that if they had additional volumes to offer, they would likely be sold fairly rapidly. The 6 cSt and 8 cSt were more plentiful and prices were therefore more exposed to downward pressure.

Paraffinic posted prices were stable, following an increase announcement by Chevron in late October, mostly prompted by climbing crude oil prices. Other producers had remained on the sidelines and a decline in crude oil and feedstock prices was thought to have taken the impetus out of further initiatives.

On the naphthenic base oils front, some grades were also said to be fairly tight, particularly as a couple of producers have just completed maintenance programs. Both Calumet and Ergon announced that the maintenance programs at their respective naphthenic plants had been concluded and the units were running well. Even though the producers had met contractual obligations during the outages, market players said that extra availability was difficult to find, although demand for exports to South America has softened and this may result in a lengthening of supply. Export prices have been reported to have undergone downward adjustments between 5 cents/gal and 10 cents/gal, with the light grades seeing the more significant decreases.

Recently implemented price increases of 20 cent/gal by a number of naphthenic producers for domestic business have lost some of their momentum as crude oil prices have weakened.

In downstream finished products segments, several major and independent manufacturers were seeking price increases of up to 15% for lubricants, greases, coolants and other finished products, with effective dates set between Dec. 1 and Dec. 15. Suppliers said the increases were necessary to offset steep production costs, including the price of base oils (which have seen several rounds of increases since January), additives, transportation, labor and packaging, among other factors.

Two additive producers had also recently announced price increases of 8-9% for first half of November implementation, according to sources. Additive availability was still tight, although one major supplier’s facilities was anticipated to have restarted this week, following a scheduled turnaround. The restart could not be confirmed.

Upstream, crude oil futures slipped on Tuesday on reports that the U.S., Great Britain, Japan, India, South Korea and China were considering the release of crude reserves to trigger a decrease in crude oil prices as gasoline prices were soaring. However, oil futures ticked up later in the session on news that the OPEC+ may revise its earlier decision that limits crude output to current levels at their meeting next week.

There were also expectations that demand would be weakening as COVID-19 cases have jumped in Europe, prompting renewed lockdown measures and possible decreases in fuel demand.

On Nov. 23, West Texas Intermediate (WTI) January futures settled at $78.50/barrel, compared to $80.76/barrel for December futures on Nov. 16.

Brent futures for January delivery settled at $82.31/barrel on the CME on Nov. 23, from $82.43/bbl on Nov. 16.

Light Louisiana Sweet crude wholesale spot prices were hovering at $77.14/barrel on Nov. 22 and had settled at $81.00/bbl on Nov. 15, according to the Energy Information Administration.

Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.

Lubes’n’Greases Publications shall not be liable for commercial decisions based on the contents of this report.

Archived base oil price reports can be found through this link: https://www.lubesngreases.com/category/base-stocks/other/base-oil-pricing-report/

Historic and current base oil pricing data are available for purchase in Excel format.

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