U.S. Base Oil Price Report

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Base oil demand was fairly steady, but not robust as most buyers were still trying to assess product needs for the next few months. With uncertainties related to the pandemic and supply chain disruptions still plaguing the market, participants said that it was difficult to forecast requirements in the long term. However, February was likely to see an uptick since blenders traditionally begin to stock up for the spring production cycle.

A large number of consumers have opted for increasing the volumes acquired under contract in 2022 and most were expected to take their allotted quantities in coming weeks. Domestic spot business was not as solid, sources commented.

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A couple of API Group II producers were hoping to place spot cargoes into the export market this month, to achieve better-balanced inventories, with a number of shipments heard to have been concluded to India, Mexico and Nigeria in December. These destinations continued to be targeted for additional shipments, as Group II volumes were said to be plentiful. In some of these markets, such as Mexico, Group I and Group II were offered at competing price levels.

While Group II supplies were ample, Group I availability was described as more balanced against current demand. Group III base oils had been snug for most of last year, but additional shipments from the Middle East and South Korea in the first part of the year, particularly of the 4 centiStoke grade, were expected to ease the tightness. A turnaround at a Group III plant in the Middle East, starting in March, was anticipated to have limited direct impact on shipments to the U.S., since the producer uses most of the output from this plant for its downstream operations. However, the outage may draw some volumes away from other suppliers to cover some of the requirements.

Despite the supply chain disruptions caused by the growing number of Omicron infections in the United States, finished lubricant producers were running plants at high rates, and reported receiving healthy buying interest for lubricants and other products as the automotive industry and some of the industrial segments were preparing for improved activity levels. Most buyers did not seem concerned about being able to find base oils as most grades seemed to be accessible.

At the same time, additive shortages persisted, but blenders said that the situation had improved over the last couple of weeks. Finding certain packaging products was also complicated, with steel supply shortages causing delays in the shipment of packaging materials. Sources said that they had seen longer lead times for steel pails, but steel drums were not as much of a problem as a few months ago.

Truck and truck drivers’ availability was probably the most pressing challenge for many lubricant suppliers. “Transportation issues are the biggest issue we face, with high costs and delays. There appears to be no end in sight on the truck driver shortage,” a source noted.

While freight and higher raw material costs increased the price pressure on base oils, posted prices remained steady week-on-week. There had been more pressure on pricing in December, when crude oil and feedstock values had dipped, but prices have since strengthened, diluting some of the price pressure.

Incidentally, lubricant manufacturers were somewhat supportive of the current base stock pricing structure as any downward revisions might undercut their own increase initiatives to raise finished products prices by up to 16% between December 2021 and February 2022. These increases were not only driven by steep base oil postings, but also by the increased prices of other raw materials, freight, labor and packaging.

One factor that participants were keeping an eye on was refinery run rates. With thousands of flights having been cancelled over the end-of-year holidays, jet kerosene demand was expected to slump, forcing refiners to adjust operating rates.

However, experts expected jet demand to rise and refiners to temper mixing jet in the distillate pool, according to an article by S&P Global Platts. “I think that we’re kind of through lockdowns, and as we shift to a different phase from a pandemic to an endemic that we all learn to live with, air travel recovers,” Phillips 66 CEO Greg Garland was reported as commenting at the virtual Goldman Sachs’ Global Clean Energy and Clean Technology Conference. From all indications, jet demand recovery has lagged that of gasoline and diesel, both of which are at or above 2019 levels, forcing refiners to continue to blend jet into the diesel transportation fuel to avoid bulging jet inventories. Most refineries had dialed back production rates in mid-2020, when jet fuel demand plummeted, but run rates have steadily improved since then, allowing for more base oil output as well.

A fire and explosion at ExxonMobil’s refinery in Baytown, Texas, on Dec. 23 forced the operator to run the unit at reduced rates until the damage was fully assessed and repairs were completed. The damage has mostly affected naphtha production. Base oil supply did not appear to have been curtailed, with several base oil customers reporting that shipments from the plant proceeded as usual. 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.

While the paraffinic base oils segment appeared to be fairly well-supplied, the naphthenic sector may experience a slight tightening when San Joaquin Refining starts a three-week turnaround at its refinery in Bakersfield, California, on Feb. 1. The producer was heard to be building inventories to cover contract requirements during the maintenance program. The base oil unit can produce 8,100 b/d of naphthenic base oils, according to Lubes’n’Greases Base Stock Plant Data.

Naphthenic producers had focused on reducing inventories at the end of the year, mostly by selling products into the spot export market. However, demand from many regular buyers has been seasonally weaker, leading at least one producer to adjust operating rates last month.

In other market news, Motiva has officially started marketing base oils produced by S-Oil in South Korea as of January 1. Motiva is a wholy-owned affiliate of Saudi Aramco, which is also a major shareholder in S-Oil. Motiva’s new Group II+ and Group III postings will be added to the price table below. At the same time, Phillips 66 postings have been discontinued due to the change in marketing responsibilities of the said base oils.

Upstream, crude oil futures surged by more than 3% on Tuesday, on expectations of a significant draw in U.S. crude inventories and concerns that OPEC+ production would not be able to meet a potential increase in global oil demand. A weaker U.S. dollar also played a part, as it makes oil less expensive for those countries that purchase the commodity in other currencies.

On Jan. 11, West Texas Intermediate (WTI) February futures settled at $81.22/barrel, compared to $76.99/barrel on Jan. 4.

Brent futures for March delivery settled at $83.72/barrel on the CME on Jan. 11, from $80/bbl on Jan. 4.

Light Louisiana Sweet crude wholesale spot prices were hovering at $80.51/barrel on Jan. 10 and had settled at $77.99/bbl on Jan. 3, 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.