U.S. Base Oil Price Report

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With only a few days to go before the 4th of July holiday weekend and the summer driving season in full swing, lubricant demand has seen an uptick over the last couple of weeks. Base oil order levels have been described as healthy as some blending plants have increased operating rates and buyers padded inventories in preparation for potential supply disruptions during the hurricane season.

Base oil suppliers appeared satisfied with the amount of buying interest for base stocks over the last several weeks, although the recent consecutive posted price increases dampened purchase volumes. Some buyers have turned more conservative in terms of orders as finished lubricant demand tends to soften towards the end of the summer. Consumers did not want to be in possession of high-priced base stock inventories if prices were to drop on softer demand, sources commented. Inflation and economic uncertainties added to the concerns.

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At the same time, this is the time of the year when consumers and suppliers alike carry extra inventory to cover for potential production outages due to severe weather along the United States Gulf Coast, where many base oil plants are located.

For the time being, base oil demand continued at a steady clip and supplies were deemed balanced to tight against requirements, supporting current price indications.

A vast majority of base oil producers communicated posted price increases of 20, 30, 35 and 40 cents per gallon, depending on the grade and the supplier, with implementation dates sprinkled between June 14 and June 27.

Not only did steep crude oil and feedstock values exert pressure on base oil prices, but a need to improve margins was also driving the initiatives. The vertiginous increase in gasoline, diesel and jet fuel values over the last few weeks on the back of climbing crude oil futures meant that base oils had to compete with fuels in terms of feedstock streams.

With a number of U.S. refineries having shut down permanently during the pandemic because of cratering fuel demand and high maintenance costs, the remaining refineries have been producing fuels at top rates to meet ramped-up consumption after COVID-19 restrictions were lifted.

The lighter base oil grades were said to be particularly tight. A turnaround at a Group II base oil facility started last month and was expected to have been completed, although no confirmation was forthcoming. Sources agreed that spot supply of all grades remained strained in the U.S, driving prices up or supporting current ideas, depending on the cut, with little product available for export. Buying interest for U.S. product was reported as strong in Europe.

A number of inquiries involving Northeast Asian product have been reported into destinations on the U.S. Gulf and Latin America, including cargoes moving to Mexico, Ecuador and Peru, but freight rates and logistics were hampering transactions, according to sources. A South Korean base oils parcel was expected to be shipped to the U.S. Gulf for potential onward shipment to Mexico. Mexican demand has softened as consumers were drawing down existing inventories and waiting for demand to pick up in the lubricants market, which many expected to take place in coming weeks.

Demand for API Group III base oils has stabilized in the U.S. as automotive lubricant blending rates remain steady. For most of the first half of the year, additives were scarce due to plant production issues and raw material shortages, and some of these issues were cropping up again. Group III cargoes from Asia and the Middle East continue to be shipped regularly into the U.S., as North American output levels are not sufficient to meet growing demand.

On the naphthenic base oils front, producers have also implemented price increases. This week, Ergon announced an increase in pricing of naphthenic base oils in the North American market of 45 cents/gal, effective July 1. The increase will apply to all viscosities, the company said.

Cross Oil and Calumet had previously communicated price increases of 30 cents/gal across the board, which went into effect on June 15 and June 20, respectively. The June/July round of naphthenic increases follows an initiative that called for increases of 25 cents/gal and 30 cents/gal between May 16 and May 31.

The pale oil increases were set off by steep crude oil and natural gas prices, inflation and other escalating costs, including transportation and labor, and received further support from robust demand levels, particularly for the light grades. Exports to Latin America were also described as healthy.

The price increases on base oils also triggered markups in downstream markets, with a fourth round of lubricant increases of up to 15%-20% slated for implementation between July 1 and Aug. 1.

On the additive side, sources reported that two major additive producers have communicated price increases of up to 10, 12 and 15%, depending on the product, expected to go into effect between June 27 and July 1. This was the third round of additive increases since the beginning of the year, with previous movements implemented in January through February and March through April.

Upstream, oil prices moved up for a third day on Tuesday as major producers Saudi Arabia and the United Arab Emirates seemed unlikely to be able to ramp up output significantly and political unrest in Libya and Ecuador added to supply worries. Analysts were keeping an eye on the OPEC+ meeting on Tuesday to assess whether August oil production would be increased.

The European Union, the U.S. and several other countries have imposed bans on Russian crude oil and refined products shipments to cripple the country’s economy as it continued to wage an unprovoked war against Ukraine. This week, U.S. authorities stopped a ship carrying refined products from Russia to Louisiana, the Wall Street Journal reported. The tanker is owned by Greek shipowner TMS Tankers Ltd. and was chartered by Vitol, a commodity trading house based in Switzerland. It sailed from Russia’s Taman peninsula in the Black Sea in early June carrying fuel oil and vacuum gasoil, and was planning to arrive in New Orleans on Sunday, the article added.

On June 28, West Texas Intermediate (WTI) August futures settled at $111.76/barrel, compared to $110.65/barrel for July futures on June 21. In comparison, in late June last year, WTI futures were hovering in the low $70s/barrel.

Brent futures for August delivery settled at $117.98/barrel on the CME on June 28, from $114.65/bbl on June 21.

Louisiana Light Sweet crude wholesale spot prices were hovering at $112.74/barrel on June 27 and had settled at $109.86/bbl on June 17, according to the Energy Information Administration. (There was no trading on June 20 due to the Juneteenth 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.