U.S. Base Oil Price Report

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Base oil market participants seem to have adopted a wait-and-see position on the back of changing fundamentals. Plunging crude oil values lifted some of the pressure on base oil prices this week, but refiners kept a watchful eye not only on crude oil pricing, but on competing fuel prices as well, as these largely determined the allocation of feedstocks at the refining level. Base oil suppliers have implemented several posted price increases since the beginning of the year to support base stock output, with prices reported as generally stable this week.

West Texas Intermediate crude oil prices plummeted to the mid-$90s per barrel on persistent concerns about a possible recession, new lockdowns in China and prospects of reduced demand in coming months.

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The Chinese government placed about 30 million people under strict lockdown rules in at least six cities after 352 new COVID-19 cases were discovered on Sunday, Bloomberg reported. This situation has worried analysts as crude demand in China was expected to contract.

Additionally, concerns about a potential recession in the United States and Europe flared up as both regions suffer from soaring inflation and high interest rates along with a surge in energy prices. 

On July 12, WTI August futures settled at $95.84/barrel, compared to $99.50/barrel on July 5. 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 $99.49/barrel on the CME on July 12, from $102.77/bbl on July 5.

Louisiana Light Sweet crude wholesale spot prices were hovering at $107.64/barrel on July 11 and had settled at $111.80/bbl on July 1, according to the Energy Information Administration. There was no trading on July 4 due to the Independence Day holiday.

Base oils and lubricants demand remained healthy on the domestic market, despite economic uncertainties and the shadow of a potential recession, due to the ongoing summer driving season and pent-up demand from several travel segments that had seen a pandemic-related slump in the previous months.

Buyers acknowledged that base oil supply remained tight, and that it was possible to get one or two extra railcars of product, but not more than that for the time being.

At the same time, buyers have turned cautious and preferred to delay orders whenever possible as there were many uncertainties in terms of pricing; many were using up existing inventories. Falling crude oil values could push base oil prices down in coming weeks, and consumers preferred not to be caught with lots of high-priced stocks. “You would not want to buy more base oils than you need right now, when crude oil prices are falling,” a source commented.

The end of the summer driving season could also result in reduced consumption of base oils and finished products, exerting downward pressure on pricing. The period between July 15 and Sept. 15 might be key in terms of demand levels, sources noted. However, the possibility of severe weather during the hurricane season and potential supply disruptions was still a wild card, and many participants opted for keeping healthy inventory levels.

API Group I supplies appeared more plentiful than a month ago, although the low-viscosity grades saw steady demand and have tightened as they continued to be fed into the diesel stream, and high-viscosity supplies were also limited, with no sizeable cargoes available for spot business. Bright stock availability has improved, but it was still not abundant, according to sources.

Group II supply remained snug given an ongoing turnaround at a Group II base oils plant, an upcoming turnaround at another Group II facility in August, and healthy demand. Any surplus appearing on the scene in the U.S. was rapidly absorbed by spot export requests, while a U.S. producer was heard to have completed intra-company shipments to Europe to fill a supply gap of certain products.

Prices in the U.S. and Latin America were still attractive compared to other regions and Asian suppliers were considering options to ship product to the Americas. It was heard that a South Korean producer had inquired about the possibility of shipping 5,000 metric tons of base oils to the U.S. Gulf, or alternatively, to India, in late July or early August. Other transactions from Asia to Latin America were also discussed in recent weeks, including shipments to Peru, Colombia and Chile.

A steady supply of Group III grades continued to arrive from South Korea and the Middle East and was deemed sufficient to cover the current demand from the automotive, industrial and other downstream segments.

Base oil and lubricant activity in Mexico was “sluggish,” although base oil cargoes were steadily flowing through Brownsville, sources said. Buyers have also turned more wary of prices given crude oil and feedstock price fluctuations and a strong dollar.

There were no posted price announcements discussed this week. Paraffinic base oil producers implemented 20, 30, 35 and 40 cents per gallon price increases, between June 14 and June 27. Naphthenic producers communicated price increases of 30 cents/gal and 45 cents/gal, depending on the supplier, which went into effect between June 15 and July 6.

Naphthenic base oil supplies were also described as balanced-to-tight against current demand, which was said to be especially robust from the transformer oil and tire business.

On the additives side, sources reported that two major additive producers had announced increases of up to 10, 12 and 15%, depending on the product, for implementation on June 27 and July 1, respectively. This was the third round of additive increases since the beginning of the year, with previous adjustments implemented in January/February and March/April. Some additive supply issues have again cropped up over the last couple of weeks, restricting production rates at some blending plants.

The recent base oils and additives increases, along with rising transportation, packaging and labor costs, drove lubricant manufacturers to announce upward price adjustments as well, with a fourth round of lubricant increases of up to 15%-20% in the process of being implemented between July 1 and Aug. 1.

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.