Transportation and logistics issues persisted, with suppliers expressing concern at not being able to meet delivery deadlines. “Trucking is still a problem and the weather is also a factor now,” a source commented, while another mentioned that it would be difficult to meet exact dates and lead time requests from customers.

Finished lubricant manufacturers announced increases of up to 16% on lubricants, greases, coolants and other products for December and February implementation, with the recent supply issues and climbing costs of raw materials, base oils, packaging and freight cited as drivers for the hikes.

Some of these issues persisted, according to sources, although supply of base oils has vastly improved compared to the same time last year. At that time, many refineries were running at reduced rates, curtailing supply of feedstocks for base oil units. Most refiners in the United States have increased run rates, but it remained to be seen whether they would be able to maintain them, as demand for fuels and other refined products could slump. With thousands of flights cancelled over the holidays due to the lack of airline crews and winter storms, consumption of jet kerosene has dipped. This might prompt some refiners to reduce operating rates in a bid to manage fuel inventories, and in turn affect base oil output.

The ongoing additive shortage has forced many lubricant manufacturers to reduce rates or shut down production temporarily. While most blenders reported improved conditions, there were some participants that were still unable to run at full rates due to the scarcity of additives. Tight availability of API Group III supplies was also mentioned as another factor affecting operations, although additional cargoes were anticipated to be imported from South Korea and the Middle East in the coming weeks.

As a result of these disruptions in downstream segments, paraffinic base oil demand had declined in the weeks leading to the holidays and was expected to remain lackluster until blenders start to build inventories for the busy spring production season, possibly later in the month or early February. “January is a wait-and-see month,” a source noted.

The lower demand levels and improved supply had led to downward adjustments on spot base oil prices in December, particularly for export transactions as suppliers had tried to entice foreign buyers to take more cargoes. Several shipments had been lined up for India and the Middle East that month. However, with crude oil numbers climbing and the prospects of improved base oil demand in coming weeks, the pressure has started to fade, sources said.

The segments that appeared the most exposed to downward pressure was the Group II category as producers were in possession of surplus availability. A couple of these cargoes were offered into Mexico at a competitive price, according to sources, and the pressure to place product into the neighboring country may persist into January if suppliers are unable to ship product to India, Africa or other deep-sea destinations.

The explosion and fire at the ExxonMobil refinery in Baytown, Texas, on Dec. 23 was expected to have limited impact on base oils output even though refinery run rates have been reduced until the damage was assessed and repairs were completed. Several base oil customers said their shipments from the plant had not been affected. 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.

On the naphthenic base oils front, supply had started to lengthen with the approach of the holidays and a seasonal slowdown in consumption levels. However, suppliers have focused on exporting the extra volumes so as to keep domestic supply better balanced against demand. Prices have been under pressure given end-of-year market fundamentals, but climbing crude oil prices kept the momentum up on the feedstocks side.

The naphthenic segment may experience tighter conditions as one of the producers will be embarking on a maintenance program in February. San Joaquin Refining will be starting a three-week turnaround at its naphthenic base oils plant in Bakersfield, California, on Feb. 1. The unit can produce 8,100 bbl/day of naphthenic base oils, according to Lubes’n’Greases Base Stock Plant Data.

Upstream, crude oil futures rose on optimistic expectations about oil demand, despite the spread of Omicron. Analysts said concerns remained over the surge in COVID-19 infections in the U.S. and some parts of Europe, but hospitalizations and deaths have not risen as much as in previous waves, signaling less of a need for governments to implement the same lockdowns and restrictions as they had at the start of the pandemic.

Attention turned instead to the OPEC+ meeting scheduled to start on Jan. 4, with expectations that the organization will not change its plan to raise output by another 400,000 barrels per day.

On Jan. 4, West Texas Intermediate (WTI) February futures settled at $76.99/barrel, compared to $75.98/barrel on Dec. 28.

Brent futures for March delivery settled at $80/barrel on the CME on Jan. 4, from $78.94/bbl for February futures on Dec. 28.

Light Louisiana Sweet crude wholesale spot prices were hovering at $77.99/barrel on Jan. 3 and had settled at $77.39/bbl on Dec. 27, according to the Energy Information Administration.

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

Please note: The Phillips 66 Group II+ and Group III postings have been withdrawn from the posted price table as of January 1 per the company’s request due to a change in marketing responsibilities for these base oils.

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.