U.S. Base Oil Price Report

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Base oil buyers and suppliers continued to deal with rising costs and supply chain disruptions caused by the ongoing pandemic, massive lockdowns in China and the Russian war on Ukraine.

Day-to-day business proceeded fairly unencumbered in the United States, although higher energy prices, inflation, persisting raw material shortages and a lack of drivers to handle truck shipments were still impacting operations. It was on the international front that many of the supply chain disruptions and transportation issues occurred. Shipments were delayed as vessels were unable to leave ports in China, or to discharge at some locations due to COVID-19 restrictions, and vessel space was generally tight, contributing to increasing freight rates.

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Mounting international sanctions on Russian exports and the shutdown of manufacturing operations in Ukraine were impacting businesses all over the world and causing shortages of certain materials like glass bottles and aluminum cans, which Ukraine exports in large quantities. “Sanctions intended to punish Russia are blowing back to companies in unexpected ways, disrupting supply chains, pushing up prices and undermining plans. Many small firms are scrambling to make up for the loss of a key export market,” The New York Times reported on April 5.

Meanwhile, U.S. paraffinic base oil suppliers have implemented posted price increases of 10 cents per gallon to 40 cents per gallon between March 18 and March 23, meant to offset skyrocketing crude oil prices on the back of U.S. bans on Russian oil and gas imports and other sanctions. This week, news of brutal Russian attacks on civilians in several Ukrainian cities emerged, prompting several European countries to expel Russian diplomats and consider more stringent sanctions on Russian oil, natural gas and coal exports, which placed even more price pressure on the energy complex.

The base oils posted price increases were also fueled by increasing production and transportation costs, along with a tightening supply and demand scenario as the lubricant spring production cycle was underway. Market participants said that they would be able to gauge actual demand levels after meetings at the Independent Lubricant Manufacturers Association conference taking place in Fort Lauderdale, Florida, on April 7-9.

Even though steep gasoline prices were expected to place a damper on driving in the U.S., large portions of the population have taken to the road because people have resumed their commute to work and school, or are going on trips that had been postponed by the pandemic. Several states hoped to tackle high gas prices by offering a temporary suspension of federal and state fuel taxes and various rebates for residents.

Air travel has also started to pick up, leading to increased jet kerosene consumption – a development refiners have been looking forward to – even though experts said that it may be some time before business travel reaches pre-pandemic levels. Reuters reported that jet fuel prices were soaring on the U.S. East Coast, where many of the busiest airports are located, with buyers anticipating a worsening shortage of fuel as worldwide supply dwindles amid sanctions on Russian energy exports.

On the naphthenic base oils side, producers were similarly concerned about mounting production costs and shrinking margins. Naphthenic producers implemented 35 cents/gal increases between March 11 and March 14, driven by the climbing costs of crude oil, natural gas, transportation and labor. Prices were also supported by snug supply levels against steady demand.

Naphthenic base oil requirements were not only healthy in the domestic market but have also improved on the export front. There has been revived buying interest for U.S. pale oils from South America and Asia, although transportation to some destinations might still be an issue.

Paraffinic suppliers were also approached about export opportunities, but higher posted prices, tightening supplies and steep transportation costs hampered business. While Mexican buying interest surged, suppliers said it was not necessarily because of stronger economic and market conditions, but rather because some consumers’ inventories were drawn down in previous months, and buyers needed to replenish stocks.

In downstream markets, price pressure also resulted in increase initiatives since the beginning of the year. Last month, several independent lubricant manufacturers, as well as a number of majors, implemented increases of up to 18% on finished lubricants between March 1 and March 28. Subsequently, a number of suppliers announced price increases on finished products by up to 15% to 25%, scheduled to go into effect between April 1 and May 2. Most of the suppliers implemented an increase in March, and intended to implement another one in April/May, while a few suppliers have not announced a second increase after the March implementation.

Additive producers also responded to the steeper base oil prices and other costs by adjusting additive prices up. Two major additive producers communicated increases of up to 15%, effective March 31 and April 15, respectively. A third additive supplier intends to raise prices by 12% (depending on terms and other conditions) on April 18. Additive producers had previously introduced price increases of up to 15% between Jan. 31 and Feb. 21.

A few lubricant and other finished products manufacturers continued to face output constraints due to raw material shortages – additives in particular. While many of the difficulties have been resolved, there was a lingering lack of specific products, which forced some lubricant manufacturers to suspend production temporarily or place customers on allocation.

Upstream, crude oil futures climbed in early trading on Tuesday on talk about countries potentially imposing more sanctions on Russia, following alleged war crimes by Russian troops in Ukraine, which fueled further concerns about supply shortages. However, the release of crude oil reserves in the U.S. and a truce brokered by the United Nations in Yemen between a Saudi-led coalition and the Houthi group pressured prices down on expectations of easing supply disruptions in the Middle East.

On April 5, West Texas Intermediate (WTI) May futures settled at $101.96/barrel, compared to $104.24/barrel for April futures on March 29.

Brent futures for June delivery settled at $106.64/barrel on the CME on April 5, from $110.23/bbl for May futures on March 29.

Louisiana Light Sweet crude wholesale spot prices were hovering at $105.29/barrel on April 4 and had settled at $109.20/bbl on March 28, 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.