U.S. Base Oil Price Report


Base oil demand remained healthy despite uncertainties brought about by volatile crude oil and feedstock prices, inflation and a possible recession, which cast a shadow on activity. Posted prices have stabilized, following several rounds of increases, and participants hoped to see the summer out without major disruptions.

Crude oil futures retreated after showing gains in early trading on Tuesday, on investors’ concerns about lower consumer confidence, recession fears and the release of another 20 million barrels of crude oil from the U.S Strategic Petroleum Reserve.

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On July 25, West Texas Intermediate (WTI) September futures settled at $94.98/barrel, compared to $102.26/barrel for August futures on July 20.

Brent futures for September delivery settled at $104.40/barrel on the CME on July 25, from $106.92/bbl on July 20.

Louisiana Light Sweet crude wholesale spot prices were hovering at $103.43/barrel on July 25, according to the Energy Information Administration.

Given the recent softening of crude oil and feedstock prices versus sky-high levels in June, base oil buyers were heard to be seeking discounts and temporary voluntary allowances or value adjustments, but it could not be confirmed whether suppliers had granted these requests.

Base oil producers noted that demand was holding at steady levels, despite expectations that orders would weaken ahead of the end of the summer driving season. The heavy grades in particular seemed to be in high demand. The strong fundamentals were supporting firm pricing. However, lubricant suppliers said they had already started to see the first intimations of a softening in consumption on the lubricants side.

Base oil demand might also be affected by a scarcity of additives, which have forced some lubricant manufacturers to reduce operating rates at their plants, although several sources said that they had not experienced an impact from the strained additives situation.

One factor that was on everyone’s radar was the need to keep extra base stock supplies to cover potential output disruptions during hurricane season, which will not be officially over until Nov. 30. Suppliers were prioritizing contract commitments and had limited supplies for spot business. The recent shutdowns at a couple of plants and reduced base oil output at some refineries as production of high-priced fuels was favored were also impacting supplies. An API Group II/III producer on the U.S. Gulf was building inventories in preparation of a turnaround in August, which was also likely to affect availability.

Spot prices were therefore fairly firm, while tight supply along with logistical issues were dampening some of the potential product movements. Still, a few export transactions have been discussed, with a 1,700-metric ton cargo made up of four grades of base oils on the table for shipment from Houston or Pascagoula to Callao, Peru. Discussions were generally muted due to the lack of spot barrels, transportation difficulties, and the strengthening of the dollar against local currencies.

Asian suppliers were still exploring possibilities of exporting base oils to the Americas as well, although securing vessel space at reasonable rates remained a challenge. A 10,000-metric ton cargo was discussed for shipment from Ulsan, South Korea, to the Caribbean. 5,000 metric tons were also mentioned for lifting in Pyongtaek or Daesan, South Korea, to Brownsville, Texas.

Surplus volumes of Group I base oils have started to pop up in Europe, and a cargo was being discussed for shipment to the U.S. Gulf or Caribbean in early August. Demand for Group I grades in Mexico remained strong, but U.S. suppliers deemed prices too low compared to the domestic market and alternative diesel pricing. The lubricant segment in Mexico has seen a demand revival, and suppliers hoped this situation would last at least through the end of the summer.

On the naphthenic base oils front, similar conditions to the ones observed on the paraffinic side were reported. Supply and demand were characterized as balanced-to-tight, with some of the lighter grades said to be more strained than their heavier counterparts. Unplanned production outages in the first week of the month have contributed to the tightening of supplies. Requirements were still robust, with fresh inquiries emerging in South America as a European supplier has exited that market for the time being, and buyers were looking for alternative sources of product.

Base oil prices have stabilized since the last round of increases, which went into effect between June 14 and June 27 for paraffinic postings, and between June 15 and July 6 for the naphthenic cuts.

In terms of additives, sources reported that two major additive producers had implemented increases of up to 10%, 12% and 15%, depending on the product, on June 27 and July 1, respectively.

The recent base oils and additives increases, along with inflation, higher transportation, packaging and labor costs drove lubricant manufacturers to seek upward price adjustments as well, with a 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.