U.S. Base Oil Price Report

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Some segments of the base oils market have tipped towards the tight side, while others showed some lengthening given high production rates and slowing demand. The extended turnaround at a U.S. Gulf plant, along with upcoming maintenance programs, were taking product out of the supply system. At the same time, additive shortages forced some blenders to run at reduced rates and cut back on base oil consumption and purchases.

As reported last week, a major API Group I and Group II refiner was heard to have extended a turnaround that had started a couple of months ago as it encountered an equipment failure when it was ready to restart its base oils plant. The producer was expected to attempt a fresh restart this week, following repairs, but further details were unavailable. As a result of the prolonged shutdown, the producer has limited availability and was not entertaining additional or incremental orders, but customers have not been placed under sales control or allocation as the supplier had built inventories ahead of the turnaround. The company was also expected to start to pad inventories during the last quarter of the year as it has scheduled maintenance at a second Group I base oils unit in early 2023.

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A second refiner has scheduled a turnaround at its Group II/Group III base oils plant in October and was monitoring orders and building inventories to cover product requirements during the shutdown, according to sources.

A third Group II producer has recently completed a turnaround and did not have much additional product to offer as it was rebuilding its stocks and dealing with lingering production issues.

Participants said that supplies of Group I base oils were snug, but sufficient to cover the current domestic demand. However, there were limited volumes for spot business. Spot prices for the lighter grades continued to be exposed to downward pressure as they were more readily available.

Similarly, the Group II sector saw a tightening of supplies, particularly as a number of export transactions took place last month, which allowed one particular supplier to reach a more balanced supply and demand position. In August, several parcels were shipped by U.S. producers to Brazil, with a 4,000-metric ton lot mentioned as having been shipped from Port Arthur, Texas, to Santos, Brazil in mid Aug. However, high freight rates continued to dampen export opportunities, while Brazilian buyers turned to locally produced material, as prices were more attractive.

The Group III segment was described as largely balanced, with imported product and locally produced barrels able to meet most requirements, although demand for the 4 centiStoke grade seemed to be outstripping supply. Buying interest for the 6 cSt and 8 cSt grades was also steady but not as robust as for the 4 cSt, and availability was more abundant. Suppliers were offering limited 4 cSt volumes bundled with 6 cSt and 8 cSt supplies. Despite a base oil demand reduction from some blenders given a scarcity of additives, particularly those for engine oil production, Group III suppliers said that this segment had not been significantly affected.

One factor that did impact the Group III segment was the steep freight rates as most product coming into the United States originates in the Middle East or Asia. Rates have steadily gone up since the start of the pandemic and have not come down, and in fact have almost doubled from a year ago, eating into profits, sources commented.

A Middle East Group III facility remained on turnaround, but was expected to return to production this month, and a domestic producer will start a turnaround in October as mentioned above.

The possibility of supply disruptions in the U.S. during the peak weeks of the hurricane season was still on everyone’s mind, particularly as Tropical Storm Danielle had formed in the North Atlantic late last week but was not expected to hit the shoreline. Another storm, Earl, developed in the Caribbean and was soon anticipated to reach hurricane strength over the weekend, bringing flooding to the U.S. Virgin Islands and Puerto Rico. Earl became the fifth named storm of the Atlantic hurricane season.

In terms of pricing, there continued to be talk about paraffinic producers granting temporary value or voluntary adjustments to customers, but this seemed to be exclusively taking place in the Group I and Group II segments. Once again, buyers commented that the TVAs were granted as a way for producers to fend off a more generalized posted price adjustment spurred by lower crude oil and feedstock prices. Additionally, since two major producers have just concluded or will be on turnaround soon, it is unlikely that they would revise pricing, sources conjectured.

On the naphthenic base oils front, there were no price adjustments reported, following a 30 cent-per-gallon decrease implemented between Aug. 5 and Aug. 10. A fairly balanced supply and demand situation, together with an unexpected shutdown, an upcoming turnaround and steady demand from South America were anticipated to result in scanty supplies.

A producer’s base oils unit suffered an unexpected production issue in mid-August and the plant was anticipated to be remain off-line until early September. A second producer has scheduled a maintenance program starting the second week of October.  

In downstream markets, lubricant manufacturers lamented ongoing additive shortages and mounting production costs. An additive producer remained on 50 percent allocation following a weather-related shutdown that started in late July, while supplies from other additive producers were strained due to lingering supply chain issues. This situation compelled a number of blenders to lower operating rates and delay product deliveries. However, some manufacturers were not affected by the shortages at all, depending on what additives they consumed.

Aside from the base oil price hikes during the first half of the year, lubricants, greases and other finished product manufacturers were dealing with climbing transportation, packaging and additive prices.

An additive supplier has communicated a price increase of up to 15 percent that was implemented in August, while a second additive supplier planned to mark up prices on Sept. 1. A third additive manufacturer has communicated price markups of up to 10%, effective Sep. 23.

Lubricant manufacturers, on their part, were also trying to push through increases, although some of them have either been adjusted down or delayed. Following increase announcements for implementation in June, July and early August, and a number of suppliers intended to adjust values in September or October. This month, one supplier was expected to increase prices by up to 15% on Sep. 1, a second manufacturer plans to raise prices on Sep. 14, while a third manufacturer has slated an increase with an effective date of Sep. 19, but the amount will vary depending on the product. There was also a communication from a supplier calling for an increase that will go into effect on Oct. 1. Several independent blenders were still evaluating the market situation and mulling increases since they had just received price hikes for additives and other raw materials.

Upstream, crude oil futures jumped in early trading on Tuesday as the OPEC+ agreed a day earlier to trim crude production by 100,000 barrels a day to prop up oil prices. However, the rally tailed off as more lockdowns in China meant that demand in that country would be reduced.

OPEC+’s decision goes against appeals from many nations, including the U.S., for oil producers to increase output as a means to tame rising inflation rates and a potential global energy crisis given the ongoing Russian war on Ukraine.

On Sept. 6, West Texas Intermediate October futures settled at $86.88/barrel, compared to $91.64/bbl on Aug. 30.

Brent futures for November delivery settled on the CME at $92.83/barrel on Sep. 6, from $99.31/bbl for October futures on Aug. 30.

Louisiana Light Sweet crude wholesale spot prices were hovering at $89.59/barrel on Sep. 2, compared to $99.90/barrel on Aug. 29, according to the Energy Information Administration. (There was no trading on Sep. 5 due to the Labor Day holiday).

Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.

(Prices are FOB basis, in U.S. dollars per gallon and U.S. dollars per metric ton).

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.