U.S. Base Oil Price Report

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The onslaught of the Omicron coronavirus variant and persistent supply chain disruptions continued to cause headaches and shipment delays in base oil and lubricant markets. While most base oil production proceeded as planned, there have been output issues at lubricant plants due to the lack of certain raw materials such as additives.

The reduced output rates at lubricant blending plants have, in turn, resulted in weaker base stocks consumption, although lubricant demand itself was characterized as healthy. Several lubricant manufacturers dealt with difficulties in locating all the raw materials and packaging they needed and were forced to reduce production rates at blending facilities. While some blenders seemed to have been able to proceed fairly unencumbered so far, they said that the raw material supply situation had come to a head this week and the additive shortage had hit them too. The difficulties were not only caused by production issues at additive plants, but by shipment delays due to the lack of trucks and truck drivers. 

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Base oil supply was deemed ample to meet current requirements, but some segments appeared to be better supplied than others. While the heavy grades within the API Group I segment have become more available – leading to a recent price decline – they were still less widely obtainable than Group II counterparts. Some Group II spot prices have now fallen below Group I price indications.

Group II supplies were plentiful and United States producers were hoping to place product into the spot export and domestic market to reduce their stock levels. Group II spot indications were exposed to downward pressure as buyers vied to obtain competitive values, but suppliers by and large dismissed some of the lower bids, citing steep crude oil and feedstock values.

Suppliers were still entertaining opportunities to ship product to India and Africa, with an 8.,000 metric ton cargo expected to be shipped from the U.S. Gulf to West Coast India at the end of January or early February and other similar shipments being discussed. A second parcel of 10,000 metric tons was concluded from the U.S. to India for early Feb. lifting. About 25,000 to 30,000 metric tons were shipped to India in December, so it was not clear whether that market would be able to absorb more shipments. Furthermore, South Korean suppliers have been also eager to attract some of the buying interest from Indian consumers and offered competitive pricing.

There have also been inquiries to move Group I and Group II cuts to Mexico, where demand seemed to be improving. However, buyers were aware of the ample supply situation in the U.S. and held out for lower offers, with prices at Brownsville, Texas, coming under pressure. A small cargo was also on the table to be shipped from the U.S. Gulf to Colombia in mid-January.

Group III base oils remained on the snug side, but additional volumes were anticipated to arrive in the U.S. from South Korea and the Middle East over the next several weeks. A South Korean producer’s availability appeared to be fairly snug for all grades, while a supplier of Middle East product had limited 4 centiStoke availability, but was offering 6 cSt and 8 cSt at attractive pricing.

Asian suppliers have also been in discussions with Latin American buyers and have been able to place shipments to several ports given more attractive pricing than U.S. offers for similar products.

Spot export prices for most base oil grades have stabilized for the time being, but there was still plenty of availability from sources in the U.S. and Europe, sources commented. There were no reports of posted price revisions, and very little speculation as to whether producers were considering any adjustments.

On the naphthenic front, there was less talk about base oils surplus availability than on the paraffinic side, lending support to stable pricing. The start of a turnaround at San Joaquin Refining’s naphthenic base oil plant in Bakersfield, California, on Feb. 1 might contribute to a further tightening of supplies. A second producer, Cross Oil, was expected to complete a short turnaround at its Smackover, Arkansas, plant in March. The tighter supply conditions and climbing crude oil prices were placing upward pressure on prices, sources noted.

In downstream markets, finished lubricant and other products manufacturers have communicated increase initiatives calling for increases of up to 16% implemented between December 2021 and February 2022. The increases were fueled by the mounting costs of raw materials, additives, packaging, labor and freight.

Upstream, crude oil futures jumped to their highest levels since 2014 on Tuesday due to concerns about potential supply disruptions in the Middle East, following drone attacks in the United Arab Emirates which could exacerbate already tight supply positions. The Iran-backed Houthi militia in Yemen attacked the U.A.E. on Monday, causing explosions at several tankers, igniting a fire at the Abu Dhabi International Airport and killing three people, according to media reports. The deadly missile attack on Abu Dhabi National Oil Co.’s storage area close to the Abu Dhabi airport triggered a sudden deterioration in the Arabian Peninsula’s security climate, making further attacks likely, OilPrice.com reported.

On Jan. 18, West Texas Intermediate (WTI) February futures settled at $85.43/barrel, compared to $81.22/barrel on Jan. 11.

Brent futures for March delivery settled at $87.51/barrel on the CME on Jan. 18, from $83.72/bbl on Jan. 11.

Light Louisiana Sweet crude wholesale spot prices were hovering at $86.22/barrel on Jan. 17 and had settled at $80.51/bbl on Jan. 10, 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.