U.S. Base Oil Price Report

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Base oil market participants were keeping a vigilant eye on crude oil pricing, as values continued to show wild fluctuations, linked to developments in the Russian war with Ukraine and geopolitical tensions in other parts of the world. On the domestic front, the main points of concern remained the climbing production costs, along with lingering additive shortages and transportation issues.

Suppliers explained that base oil demand was steady, but that it would be stronger were it not for the additive supply issues that were still plaguing downstream operations. Some blenders continued to run their manufacturing plants at reduced rates because they were unable to obtain sufficient additives. This issue seemed to be particularly affecting smaller operations, sources said. Many of the larger manufacturers were able to keep larger inventories of additives and other raw materials and were therefore less affected by shipment delays and the lack of immediate access to certain products. The additive tightness was expected to last for several more months, sources said.

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Railway operations were also experiencing issues as railcars were not readily available after reaching certain destinations where they were detained until they could be loaded and sent back, which sometimes took several days because of manufacturing delays. Some customers were requesting truck shipments to avoid railcar issues, but there was a lack of truck drivers, despite trucking and logistics companies offering better incentives and salaries to attract more drivers.

Participants braced for increased difficulties if the Russian invasion of Ukraine did not end soon, as it could lead to further economic sanctions on Russia, which would potentially entail a ban on crude oil and natural gas shipments to the European Union, significantly impacting the global energy supply and demand balance.

Even though business in the United States appeared to be returning to pre-pandemic volumes, the resurgence of coronavirus infections in some states, inflation and the climbing cost of gasoline were expected to impact people’s spending habits and mobility levels. This would have an impact on lubricant consumption as well, sources explained.

Another factor that may be impacting base oil demand in coming weeks were preparations ahead of the hurricane season in the Atlantic Basin. The 2022 hurricane season runs from June 1 to Nov. 30, and the areas covered include the Atlantic Ocean, Gulf of Mexico and the Caribbean Sea, according to CNN.com. Buyers and producers alike were expected to start securing extra barrels to keep healthy inventories in case of output disruptions caused by severe weather.

In the naphthenic base oils segment, participants also mentioned transportation and supply chain disruptions. Producers implemented 35 cents/gal increases between March 11 and March 14, driven by steep crude oil, natural gas, transportation and labor costs. Prices were also supported by snug supply levels against steadfast demand, both on the domestic front, as well as in export markets.

Paraffinic base oil prices were generally stable this week, following a whirlwind of posted price adjustments during the previous two months. Given snug spot availability of most grades, spot prices were steady to firm and few suppliers had extra volumes to offer for spot export business. Prices in the U.S. were high compared to other regions and shipments attracted lukewarm interest. However, buying appetite from Mexico has seen a revival, although it was not clear whether this was a temporary phenomenon due to the need to replenish drawn-down inventories in Mexico, or whether the trend would persist.

In shipping circles, it was heard that a small base oils cargo would be lifted from Houston, Texas, to Antwerp, Belgium, in the second half of April. Suppliers also commented that shipments in flexibags had become very difficult to conclude due to a lack of containers for long-distance shipments and skyrocketing freight rates. This was limiting shipping options to Latin America, sources added.

In downstream markets, 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 reacted to higher base oil pricing and other mounting 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.

Upstream, crude oil futures remained very volatile and ticked up by more than 6% on Tuesday after falling by about 4% the previous day as Omicron-related lockdowns in China were starting to be relaxed, sparking speculation that Chinese oil demand would increase. OPEC+ warned that it would be almost impossible to replace Russian crude oil exports if they were completely banned. Russian oil and gas condensate production fell to 2020 lows, Reuters reported.

IEA member nations decided to release 240 million barrels of oil over the next six months starting in May in an effort to keep prices from surging. While the release should ease immediate tightness, analysts indicated it will not solve the structural deficit, and stocks will need to be replenished.

On April 12, West Texas Intermediate (WTI) May futures settled at $100.60/barrel, compared to $101.96/barrel on April 5.

Brent futures for June delivery settled at $104.64/barrel on the CME on April 12, from $106.64/bbl on April 5.

Louisiana Light Sweet crude wholesale spot prices were hovering at $95.32/barrel on April 11 and had settled at $105.29/bbl on April 4, 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.