U.S. Base Oil Price Report


Naphthenic base oil producers communicated price decreases this week on softer market fundamentals. An unplanned production outage and force majeure declaration at a United States additives plant was expected to exacerbate the existing tight additive supply situation and have repercussions on base oils consumption as well.

Naphthenic base oil producer Ergon announced a decrease in pricing of naphthenic oils in the North American market of 30 cents per gallon, effective Aug. 5. The decrease will apply to all viscosities, the company noted.

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Calumet stepped out with a price decrease announcement this week as well. The company will decrease the price of all viscosity grades by 30 cents per gallon, with an effective date of Aug. 8.

Pale oils supply and demand remained balanced, with suppliers reporting healthy demand for the light grades amid snug conditions, although the heavy grades enjoyed plenty of attention as well, particularly from buyers in South America. Lower crude oil and feedstock prices lifted some of the pressure on pricing as values have come down from their peaks in early March and subsequent weeks.

Base oil prices had remained generally stable since the last round of increases, which were implemented between June 14 and June 27 for paraffinic postings, and between June 15 and July 6 for the naphthenic cuts. However, lower crude oil and feedstock prices, along with slowing demand were dampening price indications, sources commented.

On the additives side, on July 26, Afton Chemical declared force majeure on additive production because its plant in Sauget, Illinois, was flooded following torrential rains in the St. Louis, Missouri area, forcing the facility to shut down. In a notification to customers, the company mentioned that it would be limiting order quantities on engine oil additive packages and off-road products in North America. (For more information, please see “Afton Chemical Declares Force Majeure” in this week’s issue of Lube Report.)

Production outages and supply chain disruptions have caused ongoing supply headaches within the additives segment since late 2019, sometimes forcing lubricant blenders and finished product manufacturers to reduce operating rates and place customers on allocation. Last week’s incident at Afton’s plant was expected to affect lubricant production rates at blending plants and possibly result in reduced base oil demand, although it was too early to ascertain the full impact of the additives production outage.

The ongoing supply shortages in the additives segment, together with the rising costs of base oils and other raw materials, had recently prompted two major additive producers to seek increases of up to 10%, 12% and 15%, depending on the product, on June 27 and July 1, respectively. However, as lubricant demand might start to slow down, there is increasing pressure on blenders to either rescind part of the increases or start granting discounts.

Meanwhile, participants agreed that base oil consumption had remained fairly robust over the last few weeks, despite the fact that requirements tend to decline as the summer season winds down. The typical “summer doldrums” that affect activity in the base oils and lubricants segments have not been as noticeable this year, perhaps because a large portion of the population has taken to the road or returned to flying after almost two years of subdued conditions due to the coronavirus pandemic, prompting healthy lubricant demand.

Even soaring gasoline and jet fuel prices did not seem to dampen travel enthusiasm this summer. A study by McKinsey and Co. revealed that despite economic uncertainties, people were planning to take their vacations “no matter what” this summer, with travel industry numbers expected to outpace even pre-pandemic levels. Business travel has also increased significantly from figures seen in 2020 and 2021 as vaccination rates grew and restrictions were lifted.

Additionally, base stock buyers and sellers alike kept healthy inventories ahead of and during the hurricane season, which started in early June and will finish on Nov. 30, to cover for potential weather-related supply disruptions along the United States Gulf Coast, where many facilities are located. However, some consumers may start to use up these inventories instead of acquiring fresh volumes to avoid holding high-priced material for too long.

The market had also tightened as a number of refiners had favored the production of fuels – given hefty margins – to the detriment of base oil output. At least two producers were preparing inventories ahead of plant turnarounds in the second half of the year, which had also taken some spot volumes out of the market. One of the producers was anticipated to commence a turnaround at its API Group II/III plant this month.

Although paraffinic base oil supply was still generally balanced-to-tight, availability in some pockets of the Group I and Group II segments has started to lengthen. A Group II producer was expected to wrap up a turnaround at its plant this month, allowing for more barrels to return to the market. As a result of the easing supply situation, Group I and Group II spot prices have come under pressure and were said to have edged down between 5 cents/gal and 10 cents/gal this week. There were also sporadic reports of producers granting special discounts and temporary voluntary or value allowances for certain large accounts.

Buying interest for U.S. cargoes in Mexico has been mixed. Even though there were requirements that needed to be fulfilled, lower price expectations from buyers were hampering business. There was also appetite from Brazil, but logistics and price levels were also a deterrent to the conclusion of deals. European base oils, which have started to lengthen, were expected to fill some of the supply gaps in the South American country.

Upstream, crude oil futures rose slightly on Tuesday after closing at the lowest level in more than five months on Monday, as traders expected a possible policy change during an upcoming OPEC+ meeting amid signs that a global economic slowdown would result in lower crude demand and growing supply levels.

On Aug. 2, West Texas Intermediate (WTI) September futures settled at $94.42/barrel, compared to $94.98/bbl on July 25 and $102.26/bbl for August futures on July 20.

Brent futures for October delivery settled on the CME at $100.54 per barrel on Aug. 2, from $104.40/bbl for September futures on July 25 and $106.92/bbl on July 20.

Louisiana Light Sweet crude wholesale spot prices were hovering at $99.59/barrel on Aug. 1, compared to $103.43/barrel on July 25, 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.