U.S. Base Oil Price Report

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Market participants’ absence from the workplace ahead of the New Year’s holiday accentuated the slower business pace seen over the last several days. Uncertainties related to surging Omicron cases in the United States and flight cancellations could affect fuel demand and future refinery operating rates. An explosion at a major producer’s refinery in Texas last week was expected to have limited impact on base oils production.

A small number of players finalized negotiations and deals during the week, but these transactions were thought to involve spot export cargoes for the most part, along with some contract business. Domestic demand has been muted ahead of the holidays and was not expected to pick up significantly until mid-January or early February. Posted prices were stable, while spot indications continued to be exposed to downward pressure, particularly in the case of API Group II grades, which were more readily available than other cuts. Spot price decreases of around 5 to 10 cents per gallon have been widespread in all base oil categories, with steeper reductions being less ubiquitous.

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A majority of producers appeared to be satisfied with inventory levels at the end of the year, with many having been able to place product into the domestic market via special discounts on spot volumes offered to contract customers, or into the export market thanks to attractive pricing. Even so, there were a number of producers who seemed eager to sell more cargoes over the next few weeks, particularly as demand from regular buyers such as Mexico has declined due to seasonal patterns.

A few cargoes were heard finalized to India, with more offered for January shipment. However, it was not clear whether Indian customers were interested in securing additional cargoes, as many of the ones that have already been sold will be arriving in coming weeks to satisfy expected requirements. The uncertain outlook in finished lubricant segments in India led to hesitation on the part of blenders, who were concerned about acquiring too much product and not being able to use it once it arrived. Logistical and transportation issues added to the indecision.

At the same time, there were reports that Asian suppliers had been looking for opportunities to ship base oils to the Americas in a bid to achieve more balanced supply positions. A cargo of close to 3,000 metric tons of South Korean base stocks was discussed for shipment to Ecuador in the second half of January. Other suppliers were in discussions for additional shipments to various Latin American destinations in the new year.

Similar conditions were observed on the naphthenic front, with suppliers trying to place product into the export market to lower inventories at home. Export opportunities have petered out largely due to the year-end holidays and the need to finish December with lower stocks. Prices were assessed as steady-to-softer, with decreases of 5 to 10 cents/gal reported for domestic and export business.

Domestic base oil demand for both paraffinic and naphthenic base stocks continued to be affected by production disruptions at lubricant blending plants, brought about by an ongoing shortage of additives and other raw materials.

To add to the headaches already caused by supply chain disruptions, the shortage of truck drivers and vessel crews continued and appeared to be exacerbated by the spikes in the coronavirus infections. Many transportation employees were resigning because of concerns about tighter government restrictions, quarantines and border patrols due to the Omicron crisis. “According to the International Road Transportation Union, around one-fifth of all professional truck driving jobs are unfilled, despite many employers offering increased wages. Some pockets of shipping are also sounding the warning bell about future hiring prospects,” Fortune magazine reported on line.

Finished lubricant manufacturers were implementing increases of up to 15% on lubricants, greases, coolants and other products in December and February, with the recent supply issues and steep raw material, base oil and freight costs offering support to the initiatives.

In base oil production news, an explosion and fire at ExxonMobil’s Baytown, Texas, refinery on Dec. 23 was reported to have injured four workers and affected a gasoline production unit. For more information on the incident, see related story in this issue of Lube Report Americas. The Baytown unit can produce 8,200 barrels per day of Group I and 18,800 b/d of Group II base oils, according to Lubes’n’Greases Base Stock Plant Data.

It was not clear whether the Baytown explosion would impact the price of gasoline, since price fluctuations caused by these types of incidents are not typically evident until a few weeks later. Additionally, demand for gasoline historically weakens in the U.S. over the six weeks starting before Christmas to early February. A decrease in jet kerosene demand because of hundreds of cancelled flights over the holiday weekend due to the spread of the Omicron variant and related lack of airline crews, along with severe winter weather, was also expected to affect refinery operations in coming weeks.

Crude oil futures moved higher on Tuesday, despite the rapid spread of the Omicron variant in many countries. Positive economic indicators over the holiday period and forecasts of lower U.S. crude inventories boosted investors’ confidence. Oil supply outages in Ecuador, Nigeria and Libya provided additional support to numbers.

On Dec. 28, West Texas Intermediate (WTI) February futures settled at $75.98/barrel, compared to $71.12/barrel on Dec. 21.

Brent futures for February delivery settled at $78.94/barrel on the CME on Dec. 28, from $73.98/bbl on Dec. 21.

Light Louisiana Sweet crude wholesale spot prices were hovering at $77.39/barrel on Dec. 27 and had settled at $71.44/bbl on Dec. 20, 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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