U.S. Base Oil Price Report

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Base oil and lubricant producers faced challenging conditions such as employee absences and labor shortages as a result of the pandemic and the rapid spread of the Omicron strain of the coronavirus, which, among other factors, also led to a scarcity of certain key raw materials such as additives and packaging products. Many manufacturers had to trim operating rates at blending plants as a result of the supply chain disruptions. Discussions about posted price revisions appeared to have been briefly relegated to the back burner, although producers were watching the steeper crude oil and feedstock prices closely as margins were being pressured.

While there has not been a general posted price initiative since June 2021, spot prices reflected market conditions over the last several weeks, since declining demand and growing inventories had placed downward pressure on numbers. Spot indications for the heavy grades continued to exhibit this pressure, moving down by about 10 cents per gallon week on week, according to sources.

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Domestic demand was characterized as steady and spot prices of the lighter grades appeared to have stabilized, but a downward trend was still evident on export transactions, as prices in other regions were lower than in the United States and buyers expected suppliers to make competitive offers to seal a deal. Market players said that this was especially affecting API Group II values because of the more plentiful availability of Group II grades in the U.S. and foreign markets getting saturated with product.

U.S. suppliers were still pursuing potential export transactions to destinations such as India, the United Arab Emirates, Mexico, and several other ports in Latin America, although demand in countries such as Brazil has weakened. A 20,000-metric ton base oils cargo was expected to be lifted from the U.S. Gulf to India in early February, and other discussions were ongoing.

However, U.S. suppliers were also facing competition from Asian sellers, who offered attractive pricing. In shipping circles, a 3,000-metric ton cargo was being discussed to be lifted from Taiwan to Argentina in 2H February, and another parcel was being considered to move from South Korea to the Caribbean in March. Additionally, a 4,000-metric ton cargo was also heard discussed for shipment from Denmark to the U.S. Atlantic coast in the first half of February.

There was pressure on the Group I heavy grades and bright stock, but supply of these cuts was less abundant than some of the Group II cuts. Growing import volumes of Group III grades from South Korea and the Middle East, and new players in the Group III field at home were expected to increase competition. For the time being, the Group III cuts – the 4 centiStoke in particular – remained steady as they had been for the greater part of last year because of strained supply.

Refiners continued to keep a close eye on base oil inventories and would consider adjusting run rates if necessary, sources said. Base oil plants were heard to be running well, with no units heard to be shut down, although there were refinery-wide turnarounds that have started. Some of these turnarounds affected the crude tower, which means there would be less vacuum gas oil for base oil production. Yet other maintenance programs would impact the catalytic cracker, which would lead to excess VGO that is either sold on the open market or maximized through the base oil plant, sources explained.

In the naphthenic base oils segment, supply was deemed fairly balanced against demand, although the very light grade and the pale 2000 cut were slightly longer. These fundamentals, along with prospects of a demand pickup in February ahead of the spring production cycle and steep crude oil and feedstock values provided support to current pricing.

San Joaquin Refining was expected to start a turnaround at its naphthenic base oil plant in Bakersfield, California, on Feb. 1. A second producer, Cross Oil, was anticipated to complete a short turnaround at its Smackover, Arkansas, plant in March. These maintenance programs were likely to contribute to a further tightening of availability.

In downstream markets, finished lubricant and other products manufacturers have communicated increases of up to 16%, with implementation dates between December 2021 and February 2022. The increases were fueled by the climbing costs of raw materials, additives, packaging, labor and freight. An additive producer has also expressed its intention of increasing prices by 15% at the end of the month. The supplier had previously lifted prices last November. Additives availability continued to be described as problematic, with gear oil additives mentioned in particular as one of the products that have been in short supply. This situation will likely continue until mid Q2, additive suppliers were reported to have said.

Upstream, crude oil futures bounced back on Tuesday, recovering some of the territory lost the previous day, as growing geopolitical tensions in Eastern Europe and the Middle East fanned concerns over possible supply disruptions. The possibility of Russia invading Ukraine was at the forefront of discussions, with NATO sending ships and fighter jets to Eastern Europe. There was also much attention focused on a recent attack by Yemen’s Houthis on tankers and crude facilities in the United Arab Emirates, followed by a second failed missile attack this week.

The Biden administration was working with gas and crude oil suppliers from the Middle East, North Africa and Asia to possibly bolster supplies to Europe in coming weeks, in an effort to blunt the threat that Russia could cut off fuel shipments in the escalating conflict over Ukraine, The New York Times reported.

Additionally, U.S. crude inventories were at multi-year lows, with Cushing stocks assessed at their lowest levels since 2012, placing pressure on prices.

On Jan. 25, West Texas Intermediate (WTI) March futures settled at $85.60/barrel, compared to $85.43/barrel for February futures on Jan. 18.

Brent futures for March delivery settled at $88.20/barrel on the CME on Jan. 25, from $87.51/bbl on Jan. 18.

Light Louisiana Sweet crude wholesale spot prices were hovering at $86.53/barrel on Jan. 24 and had settled at $86.22/bbl on Jan. 17, 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.