U.S. Base Oil Price Report

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With producers able to place surplus availability in the export market and domestic contract business remaining at fairly steady levels, price pressure on spot indications appears to have weakened. Buyers and sellers were somewhat cautious about transacted volumes as uncertainties surrounding the new strain of the coronavirus and its potential impact on the fuels and lubricants segments lingered.

A majority of participants did not expect the Omicron variant to play a significant role in the United States market, but the number of infections in many countries has jumped and this could lead to renewed lockdowns and travel restrictions, resulting in reduced demand for transportation fuels and lubricants. Crude prices had already reacted to the new threat and plunged to three-month lows last week, but recovered this week on more optimistic forecasts. The lower crude values have also taken away some of the price pressure on base oils. Base oil spot prices underwent small downward adjustments of 3-5 cents per gallon, depending on the grade, with some of the heavier grades showing steeper discounts of up to 10 cents/gal for export transactions, according to sources.

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For the time being, U.S. players were focused on resolving some of the issues associated with transportation, logistics and raw material shortages that have plagued the system for several months.

Buyers said that most base oil grades were more plentiful than a couple of months ago, but a few suppliers were still not offering extra supplies into the spot market as contract business remained healthy. Some customers were already requesting increased volumes as negotiations to renew contracts for 2022 were underway.

Those producers who found themselves with extra supplies in their hands have been able to ship product to India, Mexico and various destinations in South America in the previous weeks. This week, export business was more muted because buyers were holding off in hopes of achieving more attractive prices in view of lower crude oil and feedstock values, but suppliers did not have that much additional product to offer. There have also been competitive offers into South America of products from the Baltic and South Korea.

On the naphthenic side, prices were steady to softer, with some spot indications undergoing 3-8 cents/gal downward adjustments this week as suppliers were keen on attracting export opportunities. Demand has been holding at healthier levels than expected, although a small seasonal reduction in consumption levels was evident, and supplies were adequate but not long given recent turnarounds, sources explained. Those suppliers who had extra availability have been largely able to find buyers in the domestic market or in South America and Asia.

San Joaquin Refining was expected to start building inventories as the producer will be taking its naphthenic base oils plant in Bakersfield, California, off-line on Feb. 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.

Meanwhile, in downstream markets, lubricant manufacturers said that additive supply, which had been extremely tight due to base oil shortages along with production outages at additive plants, was slowly becoming more abundant. However, at least one major supplier was heard to be very tight on additives for Dexos engine oils, but availability of other additives has been adequate. Another key additive producer was understood to be experiencing persistent production hiccups, but this could not be confirmed with the producer directly. A third producer’s shipments have suffered delays, according to sources.

Additive producers had announced price increases of 8-9% for first half of November implementation, which were triggered by the increase in raw material costs and strained availability.

Several major and independent lubricant and grease manufacturers also intended to raise prices by up to 15% for lubricants, greases, coolants and other finished products, with effective dates dotted between Dec. 1 and Dec. 20. Suppliers said the increases were necessary to compensate for the high production costs, including the price of base oils (which have undergone seven general rounds of increases since January), additives, labor, transportation and packaging, among other expenses.

Upstream, crude oil futures extended gains on Tuesday, following a strong rebound the day before as concerns about the impact of the Omicron strain on global fuel demand eased because symptoms caused by the variant appeared to be mild. There was little progress on nuclear talks with Iran, which was likely to delay Iranian crude exports and leave global supply at current levels. OPEC+ agreed to maintain its plan of increasing output by 400,000 barrels per day in January, signaling confidence in the demand outlook, but also kept its options open as it may revisit this decision before its next meeting in January.

On Dec. 7, West Texas Intermediate (WTI) January futures settled at $72.05/barrel, compared to $66.18/barrel on Nov. 30.

Brent futures for February delivery settled at $75.44/barrel on the CME on Dec. 7, from $70.57/bbl for January futures on Nov. 30.

Light Louisiana Sweet crude wholesale spot prices were hovering at $71.17/barrel on Dec. 6 and had settled at $70.98/bbl on Nov. 29, 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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