U.S. Base Oil Price Report


Activity was expected to pick up during the week, following the Thanksgiving holiday on Nov. 25, with suppliers embarking on the last push to lower inventories ahead of the end of the year and buyers looking for competitive offers. There was nervousness in the market due to the detection of the new Omicron variant of the coronavirus, which could potentially exacerbate the current peak of infections in many countries and negatively impact demand for crude oil, fuels and lubricants.

Crude oil prices plunged by more than $10 per barrel on Friday.

Amid all this uncertainty, and based on the experience of the last two years, many buyers were hoping to secure increased volumes under contract for 2022 to avoid potential price fluctuations and product shortages. “More customers are pushing for a more solid contract or supply agreement than in years past,” a supplier noted. However, suppliers were not always able to increase the volumes offered under contract because of ongoing commitments.

While base oil posted prices remained stable, spot prices continued to face downward pressure on the back of improved supply levels and producers’ need to find a home for surplus availability. Several sellers were exploring export options as an outlet for the extra barrels, with shipments concluded to Mexico, India and South America, although demand at all these destinations has also declined compared to a month ago and buyers were making every effort to attain lower price levels.

Not all base oil grades displayed the same behavior, however. The heavy-viscosity grades in both the API Group I and Group II segments appeared to be tighter than their light-viscosity counterparts, and downward adjustments on these cuts have therefore been more significant. Spot export prices for the Group II light grades were heard to have slumped by 20-25 cents per gallon week on week, while the Group I cuts slipped by 5-10 cents/gal.

The Group III cuts were generally holding at steady to slightly lower price levels, and the 4 centiStoke grade in particular was maintaining its status as the most sought-after cut within this segment given healthy demand for synthetic oil blending. The 6 cSt and 8 cSt cuts were like the popular fairy tale’s stepsisters who were less admired and more exposed to downward price pressure.

On the naphthenic front, there have been signs of downward pressure on prices due to the typical demand slowdown seen during the last few weeks of the year, but the domestic price decreases were confined to 5-10 cents/gal. Demand has remained surprisingly steady, suppliers said, and it was fairly well-balanced against supply.

Two producers – Ergon and Calumet – have recently completed turnarounds, and both producers covered customer requirements during their maintenance events, with no product shortages noted.

San Joaquin Refining will be taking its naphthenic base oils plant in Bakersfield, California, off-line on February 1 for a three-week turnaround. The unit can produce 8,100 barrels per day of naphthenic base oils, according to Lubes’n’Greases Base Stock Plant Data.

Downstream, lubricant and other finished products manufacturers reported that operating rates at factories and blending plants were improving, following disruptions caused by a shortage of additives and other raw materials, along with transportation issues and a lack of drivers, railcars and vessel space.

An additive producer was expected to have resumed production last week after completing a turnaround, and this might help improve additive availability, although this could not be confirmed. Two additive producers had announced price increases of 8-9% for first half of November implementation, mostly driven by the increase in raw material costs and limited availability, according to sources.

Likewise, several major and independent lubricant and grease manufacturers have communicated 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.

Upstream, crude oil futures plummeted to multi-year lows and posted the biggest drop in 20 months last week after news of the virus variant Omicron hit the market and Moderna’s CEO cast doubt on the efficacy of COVID-19 vaccines against the strain on Tuesday. This caused jitters in financial markets and raised questions about potential oil demand destruction as countries reimposed travel restrictions and lockdowns.

On Nov. 30, West Texas Intermediate (WTI) January futures settled at $66.18/barrel, compared to $78.50/barrel on Nov. 23.

Brent futures for January delivery settled at $70.57/barrel on the CME on Nov. 30, from $82.31/bbl on Nov. 23.

Light Louisiana Sweet crude wholesale spot prices were hovering at $70.98/barrel on Nov. 29 and had settled at $77.14/bbl on Nov. 22, 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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