U.S. Base Oil Price Report

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Base oil market activity remained steady given avid buying interest from downstream lubricant segments during the summer driving season, although business was somewhat subdued due to the Independence Day holiday in the United States on Monday, July 4, with no price changes noted. Participants kept a concerned eye on crude oil and feedstock values, as strong fluctuations continued to impact refinery operations. On the naphthenic side, San Joaquin Refining communicated a price increase, joining other pale oil producers who have implemented upward adjustments since mid-June.

While buying appetite for base oils remained robust, some participants expressed concerns at the possibility that demand would start to decline in the next few weeks as the summer driving season wraps up and recession fears dampen the outlook for lubricant consumption.

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Consumer sentiment plunged to record lows amid surging inflation in June, CNN Business.com reported. Record gas prices helped push down the consumer sentimentindex from 58.4 in May to 50.2 in June – the lowest recorded level since data started to be collected in November 1952.

There has also been strong buying interest for U.S. base oil exports from Europe and Latin America over the last three months, but European demand was likely to contract in coming weeks on an expected economic slowdown.

Nevertheless, some players in the U.S. remained more optimistic and expected conditions to remain robust, with demand showing strong levels through the fourth quarter, both on the paraffinic and the naphthenic sides of the business.

Paraffinic base oil producers had reacted to the firm market fundamentals by initiating increases in June. A vast majority of suppliers increased postings by 20, 30, 35 and 40 cents per gallon, depending on the grade and the supplier, between June 14 and June 27.

Steep crude oil and feedstock prices, coupled with steady base oil demand and tight supplies of several base oil grades fueled the initiatives. Base oil producers also sought to improve margins as values competed with record fuel prices at the refinery level, with some refiners streaming more feedstocks into fuel production in detriment to base oil output.

On the naphthenic base oils front, San Joaquin Refining communicated a price increase of 30 cents/gal, effective July 6. “This increase is not crude oil related but driven by the need to keep pace with high-priced alternate markets, including diesel,” the company explained.

The pale oil increases were also supported by steep crude oil and natural gas prices, inflation, and other escalating costs, including transportation and labor, according to sources. Other naphthenic producers had previously announced price adjustments as well. Cross Oil and Calumet implemented 30 cents/gal increases across the board on June 15 and June 20, respectively. Ergon communicated an increase on its naphthenic base oils of 45 cents/gal, effective July 1.

Paraffinic base oil supplies were described as balanced to tight against demand, with the light viscosities within the API Group I and Group II segments showing more limited availability. Group III offerings were considered sufficient to cover the current call for product, as imports continued to arrive regularly from South Korea and the Middle East.

Group II availability was impacted by the turnaround at a U.S. Group II facility in June, while Group I spot supplies were also sparse due to production issues earlier in the year and continuous demand both on the domestic market as well as in Mexico. Buyers and suppliers have also padded inventories to cover potential supply disruptions caused by possible hurricanes between June 1 and Nov. 31. In the Atlantic Basin, the first hurricane is usually expected around Aug. 11, according to historical meteorological data, but this year, there have already been three tropical systems before July 4.

In other production news, ExxonMobil announced at the ICIS Base Oils Conference in Windsor, U.K., last week that its expanded Group II base oil plant in Singapore was scheduled to start production in 2025, slightly delayed from an original start-up date in 2023. (For more details, see “ExxonMobil Continues Group II Expansion” in the July 1 issue of Lube Report Asia).

Additional producers have altered their production plans due to the current tight conditions in global base oil markets, brought about by the sanctions on Russian exports and production outages at Group I plants in several countries. There are reports that Shell has decided to delay the permanent shutdown of its Pulau Bukom Group I plant in Singapore, which was scheduled to take place this month. The site produces 7,400 barrels per day of Group I base oils, according to Lubes’n’Greases Base Stock Plant Data, which are then processed at Shell’s Tuas lubricants plant.

In downstream markets, the climbing costs of base oils and additives have prompted lubricant manufacturers to announce increases, with a fourth round of lubricant increases of up to 15%-20% slated for implementation between July 1 and Aug. 1.

On the additives 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, West Texas Intermediate crude oil prices plunged below the $100 per barrel mark on Tuesday on growing recession concerns, as oil demand would be negatively impacted. Crude oil was trading near $120/bbl as recently as mid-June on supply constraints caused by international sanctions on Russian exports of crude oil and refined products as the country continues its aggressive invasion of Ukraine.

Brent and WTI prices declined last month for the first time since November and are both down about 20% from their 52-week highs set on March 8, according to Barron’s.com.

On July 5, WTI August futures settled at $99.50/barrel, compared to $111.76/barrel on June 28. In comparison, in early July last year, WTI futures were hovering in the mid to low $70s/barrel.

Brent futures for September delivery settled at $102.77/barrel on the CME on July 5, from $117.98/bbl for August futures on June 28.

Louisiana Light Sweet crude wholesale spot prices were hovering at $111.80/barrel on July 1 and had settled at $112.74/bbl on June 27, according to the Energy Information Administration. (There was no trading on July 4 due to the Independence 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.