U.S. Base Oil Price Report


Market activity was expected to pick up following the Memorial Day holiday on May 30, the unofficial start of the summer driving season in the United States. Most paraffinic and naphthenic base oil producers communicated price increases over the last two weeks, propelled by a need to prop up margins as crude oil, feedstocks, transportation and other costs continued to escalate. Base stock consumers faced difficulties in transferring the higher raw material prices down the supply chain, despite several increase initiatives for finished products scheduled for May-June implementation.

On the paraffinic side, API Group I, Group II and Group II+ producers implemented posted price increases of 20, 25, 30, 35 and 45 cents per gallon, depending on the supplier and the product, with effective dates sprinkled between May 20 and May 27.

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This was the second price initiative in a matter of days. A previous round of markups had lifted posting between 20 cents/gal and 70 cents/gal, depending on the amount and the timing of preceding adjustments. These price markups had gone into effect between May 4 and May 23.

On the naphthenic front, producers applied increases of 25 cents/gal and 30 cents/gal to all viscosities between May 16 and May 31.

Similar conditions to those prompting the increases on the paraffinic side were fueling the markups for pale oils. The supply and demand ratio was balanced to tight, and crude oil and feedstock prices were exerting upward pressure on pricing. Other costs such as raw materials, energy, transportation and labor added to the pressure, sources explained.

Aside from the price pressure emanating from the feedstocks side, base oil producers were also dealing with ongoing uncertainty regarding vacuum gas oil supplies. In an effort to impair Russia’s economy and push the country to cease its attacks on Ukraine, the U.S. has banned Russian imports of crude oil and refined products, which has led to a shortage of vacuum gas oil, ultimately impacting base oil output.

The war in Ukraine and the coronavirus pandemic were the main factors that fueled a jump in crude oil and gasoline prices, stoked inflation and stalled global economic growth rates, media outlets reported. On Monday, the European Union also agreed to ban most imports of Russian oil and petroleum products by the end of the year, “the harshest economic penalty yet imposed on Russia for its invasion of Ukraine, and potentially the biggest sacrifice by Europe itself,” The New York Times noted. EU member countries had already isolated Russian banks from global financial systems and frozen Russian assets almost immediately after the war began three months ago.

Some U.S. refiners were also favoring the production of fuels such as diesel and jet kerosene over base stocks as prices have skyrocketed and were competing with base oils. This resulted in lower production levels of base stocks in some cases, although most plants were said to be running well. A number of turnarounds were slated for the third quarter, and producers were starting to build stocks ahead of their shutdowns, limiting spot supply in the domestic market.

The combination of all of these factors has driven spot prices up in the U.S. Very few parcels were offered for spot export business, despite buying interest from Europe and South America. A 2,600-metric ton cargo was on the table to be shipped from Houston, Texas, to Genoa, Italy, this month. A 14,000-metric ton lot was heard to have been shipped from Paulsboro, New Jersey, to Rotterdam, Netherlands, and Riga, Latvia, in early May.

Given the strained supply fundamentals in the U.S. and the high prices, South American buyers looked for alternative sources of base oils. It was heard that Asian producers were in discussions to ship product to various South American ports. About 8,000-10,000 metric tons were heard to be on the table for shipment from Mailiao, Taiwan, to La Plata, Argentina between the second half of June and the first half of July. Another 6,600 metric tons were mentioned as possibly moving from Ulsan, South Korea, to La Plata in the second half of June. A South Korean base oil parcel was discussed for shipment from Ulsan to New Orleans, Louisiana, in early June.

Some cargoes continued to find their way to Mexico, and prices have moved up even to that destination, but participants’ efforts to keep prices in check were leading to more stable pricing this week.

Additionally, both consumers and suppliers were also trying to bolster inventories in preparation for potential supply disruptions were a severe storm to hit production plants along the U.S. Gulf Coast as the hurricane season has officially started in the Atlantic Basin. The season runs from June 1 until Nov. 30.

Downstream, some additive supply shortages continued to be noted, but the situation has improved significantly compared to two months ago, sources commented. Additive suppliers were heard to be maintaining their allocation programs out of an abundance of caution.

A number of lubricant and other finished products manufacturers were heard to have requested that the implementation of the latest round of base oil increases be postponed, and others were hoping to receive TVAs (temporary value allowances or adjustments) as it has been difficult to absorb the price hikes.

Lubricant and finished products manufacturers were also in the midst of implementing price increases of their own to offset the higher base oil prices, along with steeper transportation, logistics and packaging values. Increases of up to 8%-15% have been announced, with implementation dates peppered between May 27 and July 1.

Upstream, crude oil futures jumped in early trading on Tuesday after EU leaders reached an agreement late Monday to ban 90% of Russian crude by the end of the year. Charles Michel, president of the European Council, noted that the move would immediately hit 75% of Russian oil imports. Hungary will not participate in the ban as the country is a major user of Russian oil and its leader, Viktor Orban, has been on friendly terms with Vladimir Putin. An easing of COVID-19-related restrictions in China also pushed prices up as there were expectations of an increase in Chinese crude consumption.

On May 31, West Texas Intermediate July futures settled at $114.67/barrel, compared to $109.77/barrel on May 24.

Brent futures for July delivery settled at $122.84/barrel on the CME on May 31, from $113.56/bbl on May 24.

Louisiana Light Sweet crude wholesale spot prices were hovering at $116.51/barrel on May 27 and had settled at $110.62/bbl on May 23, according to the Energy Information Administration (There was no trading on May 30 due to the Memorial Day holiday).

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.