Excel Paralubes communicated a posted price increase this week, hot on the heels of a previous round of price adjustments for API Group I, II and II+ base oils that began in mid-April. The initiative was thought to be driven by firm crude oil values, tightening supply of feedstocks and strained availability of base oils.
Excel Paralubes informed its customers that effective May 4, the company would be lifting its Group II 70N and 110N base oils by 15 cents per gallon, its 225N cut by 20 cents/gal and its 600N grade by 25 cents/gal. This would be the fourth upward adjustment for Group I/Group II base oils since the beginning of the year.
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During the previous round of price hikes, Excel Paralubes had increased the posted price of all of its Group II base oils by 20 cents/gal on April 20.
At that time, producers had raised postings by 15, 20, 25 and 30 cents per gallon, depending on the grade and the producer, in response to steep crude oil and feedstock values, tight supply and robust demand. The increases went into effect between April 15 and April 25.
Aside from the prospects of dealing with persistently volatile crude oil prices due to the Russian invasion of Ukraine, accompanied by other geopolitical issues, base oil producers were facing uncertainties related to feedstock supplies. Availability of vacuum gas oil was anticipated to dwindle due to the United States ban on imports of Russian oil and refined products. For the time being, most refineries were running at optimum rates, but a tightening of VGO might start to be felt in the coming weeks, according to sources.
Refinery operators were also basing decisions on current refining economics and high fuel prices, and this meant that in many cases, it made more sense to stream feedstocks into fuel production, inevitably leading to reduced base oil output. Participants commented that there was increased production of diesel and “because this fuel is more profitable than base oils, it will have the priority in the refinery,” a source emphasized. Following the recent posted price increases, base oil managers were hoping to improve margins to encourage production.
Another factor that may have an impact on base oil and lubricant consumption was the massive COVID-related lockdowns in China, which were expected to result in manufacturing outages, supply chain disruptions and a shortage of certain components for automotive production. This had been the case when the coronavirus pandemic began in 2020 and there was high worker absenteeism in China, leading to part shortages and car manufacturing plants around the globe to shut down temporarily. In turn, this had resulted in a slump in base oil and lubricant requirements. Additionally, the lockdowns in China were fanning concerns about a significant drop in crude oil demand.
In the meantime, participants noted that domestic base oil supply was tight, as demand has been steady and was likely to climb since both buyers and suppliers bolster inventories ahead of the hurricane season in the Atlantic basin, which starts on June 1. Most suppliers were limiting shipments to contract volumes and were hesitant to commit to spot opportunities. Buyers who typically were more reluctant to commit to volumes ahead of time now appeared eager to secure contract shipments until the end of the year.
There was very little extra Group I and Group II product available for spot export business, although some cargoes were expected to move to Mexico, where there has been an uptick in requirements “for all grades,” according to sources, and buyers were willing to increase their bid levels to secure material.
Within the Group I segment, bright stock availability remained strained, particularly as a producer has scaled back production temporarily. The light grades were heard to be less available than the heavier cuts, but the heavy-vis cuts were also getting tight. A producer reported not being able to offer any spot barrels until July/August.
While interest for U.S. exports remained high in Latin America and India, the recent price revisions have turned U.S. product less competitive in those markets. Conversely, there have been a couple of transactions involving South Korean product moving to the U.S. Gulf and South America.
Group III shipments continued to arrive as scheduled from South Korea and the Middle East and there appeared to be sufficient product to cover requirements. A supplier’s availability was heard to have lengthened, and it was hoping to find a home for the extra barrels, sources said.
Rerefiners mentioned that there was increased competition for used oil – which they use as a feedstock – since many companies in Europe were switching from natural gas to used oil due to Russian gas supply disruptions.
On the naphthenic base oils front, prices were stable, but upward pressure continued to be exerted by firm crude oil and feedstock costs. Further price support was offered by a balanced-to-tight supply and demand scenario.
There was increased buying interest for U.S. pale oils from South America since exports from Europe were expected to be throttled by decreasing feedstock supplies due to the sanctions on Russian oil and refined products. This situation was expected to deteriorate even further in coming weeks.
In downstream segments, lubricant, grease and other finished products manufacturers continued to face additive and raw material shortages along with escalating production costs. The raw material shortages have led to reduced operating rates and allocations on finished products, which has also affected base oil consumption, particularly of Group III grades.
The most recent round of base oil increase initiatives exerted additional pressure on finished products, sources noted. It was not surprising, therefore, that yet another lubricant price increase initiative surfaced this week. Sources said that a major lubricant supplier will be implementing an increase on its list prices for finished lubricants by up to 10%, effective June 1.
This initiative follows two previous rounds of lubricant increases since the beginning of the year. Several independent lubricant manufacturers, as well as a number of majors, implemented price increases on finished products of up to 15% to 25% which went into effect between March 28 and May 2. These adjustments came on the back of markups of up to 18% implemented by a majority of finished products manufacturers between March 1 and March 28.
Additive producers have also raised additive prices due to the increase in base oil postings and other factors. Two major additive producers lifted prices by up to 15% on March 31 and April 15, respectively. A third additive supplier lifted 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 reversed course on Monday and were trading in positive territory on the back of surging diesel prices and fears about a supply crunch if the European Union imposed a ban on Russian crude. Oil output disruptions in Libya, Nigeria and Angola were also causing some concern. However, on Tuesday, prices slipped on expectations of a drop in oil demand from China given the ongoing lockdowns and widespread testing in Beijing.
On May 3, West Texas Intermediate (WTI) June futures settled at $102.41/barrel, compared to $101.70/barrel on April 26.
Brent futures for July delivery settled at $104.97/barrel on the CME on May 3, from $104.99/bbl for June futures on April 26.
Louisiana Light Sweet crude wholesale spot prices were hovering at $106.78/barrel on May 2 and had settled at $101.85/bbl on April 25, 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.
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Historic and current base oil pricing data are available for purchase in Excel format.