U.S. Base Oil Price Report

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Not surprisingly, the start of the holiday season had a dampening effect on base oil market activity, although several suppliers noted that orders had remained fairly steady over the last few weeks. This somewhat atypical phenomenon was partly attributed to most participants having had to run operations hand-to-mouth as supplies had been so limited earlier in the year, and some inventories were just now being replenished. Meanwhile, recovery efforts were ongoing after deadly tornadoes hit Central and Southern United States. There were no reports of base oil supply disruptions due to the severe weather.

In terms of base oil orders, several sellers were making concerted efforts to find buyers before Dec. 31 to lower their stock levels and have therefore lowered their offers. A few export transactions helped domestic suppliers attain more balanced supply positions, but the pace of export business has slowed, according to sources.

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One of the recent cargoes to be discussed was an 11,000-metric ton parcel to be shipped from the U.S. Gulf to Brazil in the second half of Dec. However, exports to Brazil were becoming more of an exception than a rule, as the country’s domestic production has improved significantly and its dependence on imports has declined. U.S. producers had previously also shipped several cargoes to various destinations in South America, Mexico, India and the Middle East. These two last destinations continued to be targeted as potential outlets for spot export cargoes and offers were adjusted down to match local bid levels. Several cargoes were concluded for shipment to India in December and January. Not only API Group II cargoes of U.S. origin were attracting the attention of Indian buyers, but Group I barrels as well.

The spread of the new Omicron variant of the coronavirus was having less of an effect on base oil markets than expected, although participants were keeping an eye out for potential restrictions on the population’s mobility as these may have an impact on fuel and lubricants consumption around the holiday period. So far, one of the effects of the new strain has been many companies’ postponement of their return-to-the-office initiatives, which meant that fewer people would be on the road in coming weeks.

Furthermore, with infection rates jumping in many countries, air travel may be further restricted and flights cancelled as well, and this could possibly lead to weaker consumption of jet kerosene, which is what had originally triggered the reduction of refinery run rates when the pandemic first started.

Indeed, some of the same issues that emerged when the world first encountered the coronavirus were recurring. Manufacturing facilities were starting to cut back on production rates or stopping temporarily due to a lack of components and raw materials.

Automaker Toyota had announced earlier this month that production rates at its factories would go back to 100% in December, but the manufacturer has now scaled back its predictions. Toyota said it would extend production halts at some of its facilities across Southeast Asia as the company runs short of vital components, Fortune reported on line. Toyota predicted its vehicle production would fall short by 14,000 units in December.

In terms of base oil supply, Group I availability was described as plentiful, with bright stock levels having improved significantly compared to the first half of the year, and this has led to lower spot prices. While the price drops were less widespread than two months ago, downward pressure on bright stock and the heavy grades persisted and led to downward adjustments within a range of 5 to 20 cents per gallon this week.

The Group II segment also displayed lengthening availability, especially of the lighter grades, with domestic consumers absorbing some availability, but leaving plenty for export transactions. Producers have lowered spot offers to attract business, with numbers dropping by 10 to 20 cents/gal. They have also placed several parcels into the export market at lower price levels than last week.

In the Group III segment, the 4 cSt grade was tight and demand for engine oil blending has not let up. The 6 cSt and 8 cSt grades were comparatively less sought after and prices were more exposed to downward pressure. The spot adjustments in this sector were smaller than for Group I and Group II grades, however, and numbers have only slipped by a few pennies.

While spot prices were sliding, posted prices remained stable. There was talk of buyers requesting special discounts and temporary voluntary allowances, but no direct reports of instances where these had been granted. Some participants speculated that lubricant consumers were not particularly keen on seeing posted price decreases because these movements would undermine some of the finished products price increase initiatives that were still on the table. However, this sentiment could not be confirmed with buyers directly.

A good number of buyers were trying to secure more volumes under contract for next year to avoid potentially sharp price fluctuations and supply shortages. A supplier explained that the company had not received any requests for price decreases because its customers were more interested in ensuring supply security.

On the naphthenic side, prices were steady to softer due to a seasonal slowdown in consumption, particularly in some export markets. This has placed pressure on pricing, with indications falling by 5 to 10 cents/gal for domestic and export business.

Nevertheless, given recent naphthenic plant turnarounds in the U.S. and an upcoming one in February, supply was not deemed alarmingly long in this segment of the market. The permanent shutdown of a naphthenic plant on the U.S. Gulf two years ago and ongoing production hiccups at another facility contributed to the tighter supply/demand scenario seen during most of the year.

San Joaquin Refining was expected to start building inventories as the producer was preparing for a three-week turnaround at its naphthenic base oils plant in Bakersfield, California, starting on Feb. 1. The unit can produce 8,100 bbl/day of naphthenic base oils, according to Lubes’n’Greases Base Stock Plant Data.

Meanwhile, in downstream markets, lubricant manufacturers continued to face additive shortages, but the situation has improved, sources said. A recent turnaround at a major facility and production issues at another had led to a lack of additives and had forced several lubricant producers to cut back operating rates. Additive producers announced price increases of 8%-9% for first half of November implementation, which were triggered by the increase in the cost of raw materials such as base oils, along with limited availability.

Several major and independent lubricant and grease manufacturers have also communicated price increases of up to 15% for lubricants, greases, coolants and other finished products, with effective dates peppered between Dec. 1 and Dec. 20. There were reports that some of the initiatives would be implemented next February. Suppliers said the increases were necessary to offset the steep production costs, including the price of base oils, additives, labor, transportation and packaging, among others.

Upstream, crude oil futures slipped on Tuesday, as predictions that the omicron variant would have a significant an impact on oil demand upstaged a bullish outlook from OPEC’s latest monthly report.

On Dec. 14, West Texas Intermediate (WTI) January futures settled at $70.73/barrel, compared to $72.05/barrel on Dec. 7.

Brent futures for February delivery settled at $73.70/barrel on the CME on Dec. 7, from $75.44/bbl on Dec. 7.

Light Louisiana Sweet crude wholesale spot prices were hovering at $73.44/barrel on Dec. 6 and had settled at $71.17/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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