U.S. Base Oil Price Report

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Chevron announced a posted price increase this week, a week after Excel Paralubes had communicated a similar initiative, ushering in the fourth increase on API Group I and Group II grades since the beginning of the year. The markups were said to be driven by a tight supply and demand scenario, steep crude oil and feedstock prices and other climbing production costs.

Chevron informed customers that the producer would be increasing the posted price of its Group II 100R and 220R grades by 25 cents per gallon and its 600R grade by 30 cents/gal, with an effective date of May 10, “to reflect current market conditions,” the company explained.

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Last week, Excel Paralubes lifted its Group II 70N and 110N base oils by 15 cents/gal, its 225N cut by 20 cents/gal and its 600N grade by 25 cents/gal as of May 4.

Crude oil price volatility was seen as one of the main culprits for the recent posted price adjustments. Crude values have shown sharp fluctuations since January, but the changes have become even more significant since Russia’s attack on Ukraine in late February, which triggered efforts by several countries to handicap Russian’s economy. The United States has already banned Russian imports of crude oil, natural gas and coal as of April. The measures being considered by the European Union included a potential embargo on Russia’s crude oil and natural gas exports – which many European countries are very dependent on – and were expected to impact global crude oil supply levels and pricing in the weeks to come. For the time being, Russian crude exports continued and have reached post-pandemic highs despite falling production rates, with robust buying coming on the back of heavily discounted barrels, OilPrice.com reported. China and India remained major buyers of the Russian barrels, along with other countries, but volumes might drop after May 15 when EU sanctions barring transactions with Rosneft and Gazpromneft come into effect.

The U.S.’ ban on Russian crude oil and refined products was likely to limit feedstock vacuum gas oil availability at domestic refineries and ultimately affect base oil production in the coming weeks. Diesel production was not keeping up with demand, and market players said diesel shortages were starting to be observed and prices have jumped. Several refiners were currently favoring jet fuel and diesel production as they offered higher margins and were diverting more feedstocks into the fuels stream, with light-viscosity base oil output consequently scaled back.

As a result, Group I and Group II availability has tightened within the U.S. market, with little product offered for export business. Bright stock availability was deemed particularly strained and importing it from other regions such as Europe did not seem feasible. Mexican buyers were still keen on importing U.S. base oils and appeared willing to pay slightly higher prices to secure product as availability seemed to be increasingly scant. There were discussions to move Asian Group II base oils to the U.S. Gulf and Latin America, but some of these transactions were thwarted by logistics and high freight rates.

Domestic requirements were described as healthy, with buyers intent on taking most of their contractual volumes plus additional product to pad inventories ahead of the hurricane season in the Atlantic basin. The season spans from June 1 until Nov. 30 but was predicted to be an active one and start earlier, with an eastern Atlantic tropical wave moving westward on May 9 already, according to the National Hurricane Center.

Furthermore, a turnaround at a Group II facility in May and upcoming maintenance programs in the second half of the year meant that producers were building inventories and extra supplies were limited.

Meanwhile, Group III supplies were deemed sufficient to cover the current call for product, with regular cargoes arriving from Asia and the Middle East and no supply issues noted. Spot prices were holding steady, according to sources.

On the naphthenic base oils front, prices remained stable, supported by a balanced to tight supply and demand ratio. Firm crude oil and feedstock costs continued to exert upward pressure on pricing. 

It was heard that South American and European buyers were looking at importing more U.S. pale oils, given that exports from Europe were expected to be curtailed by decreasing feedstock supplies due to sanctions on Russian oil and refined products. European production has already fallen as at least one producer was heard to be facing feedstock supply issues. However, sources said that there was not much extra U.S. naphthenic base oil for spot export transactions because most suppliers were intent on meeting contractual obligations at home.

Additional price movements surfaced in downstream segments given that lubricant, grease and other finished products manufacturers continued to deal with scarce additive and raw materials, climbing transportation and packaging costs and other increased expenses. Several major and independent blenders and manufacturers announced lubricant price increases of up to 8%-10%, with implementation dates dotted between May 27 and July 1. Some of the increases of a previous round intended for April will become effective in May as lubricant deliveries were suffering delays due to the raw material shortages.

The late May-early July 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 January 31 and February 21.

Upstream, crude oil futures slumped in early trading on Tuesday, extending steep overnight declines, as growing concerns about a possible recession and the wide-reaching COVID-19 related lockdowns in China placed downward pressure on values.

On May 10, West Texas Intermediate (WTI) June futures settled at $99.76/barrel, compared to $102.41/barrel on May 3.

Brent futures for July delivery settled at $102.46/barrel on the CME on May 10, from $104.97/bbl on May 3.

Louisiana Light Sweet crude wholesale spot prices were hovering at $105.73/barrel on May 9 and had settled at $106.78/bbl on May 2, 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.