U.S. Base Oil Price Report

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No further posted price adjustments were communicated by base oil producers, following a round of decreases that resulted in lower values in the previous weeks. The price revisions were thought to have been prompted by softer crude oil and feedstock prices, slowing demand and growing supply. This week, some attention was focused on transportation and logistics disruptions caused by Hurricane Ian as it wreaked havoc in large portions of the Southeastern U.S. last week.

Over the last three weeks, paraffinic producers informed their customers that they would be reducing postings by 20, 30, 35, 40 and 45 cents per gallon, depending on the grade and the producer, between Sept. 1 and Oct. 1.

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The string of downward adjustments was initiated by Motiva, as the producer communicated 20 cents/gal and 50 cents/gal downward revisions on its base oil grades, effective Sep. 1. Motiva was also expected to start a turnaround at its Port Arthur, Texas, API Group II and Group III facility this month. The supplier has built inventories to continue covering requirements during the outage, according to sources.

It was also heard that a large Group I and Group II supplier continued struggling with technical issues after extending a turnaround that had started in June, but it appeared that production has stabilized. A second Group II producer was experiencing some production issues as well.

Nevertheless, participants said that most base oil grades were available because of seasonally weaker demand and a majority of plants running at full rates during the last few months. However, this situation may change as refiners were mulling base oil production rate cuts to stave off oversupply. “The diesel market is still strong in the U.S. so the light feedstock will go to fuels,” a source explained.

Most suppliers typically try to export surplus barrels to help achieve a more balanced domestic supply/demand scenario, but export opportunities were restricted by subdued buying interest and low prices as base oils were plentiful in other regions as well, with the exception perhaps of one or two grades.

Availability of the Group III 4 centiStoke cut, for example, was thought to be tight in most regions given healthy demand and recent turnarounds at Group III facilities. The heavy grades in general also seemed to be on the snug side compared to the lighter grades. Some cuts have lost territory in terms of pricing, with Group I and Group II U.S. export values falling by around 10 cents/gal week on week.

Some of the naphthenic base oil cuts were tight in the U.S. as well, particularly those that are used in transformer oil applications, and were expected to tighten further as demand was likely to increase following damage from Hurricane Ian and a need to conduct repairs on equipment destroyed by the storm. There were robust pockets of domestic business as well as keen buying interest from South America.

Furthermore, pale oil supply levels had been impacted by an unexpected production outage at a naphthenic base oils plant in August, which lasted about a month.

Calumet was also preparing to start a turnaround at its naphthenic base oils plant in Princeton, Louisiana, in approximately one week. The unit was expected to be down until the end of the month. It was heard that the producer had also reduced the amount of product that it was making available beyond those volumes sold under contract to prepare inventories for the turnaround.

On the import/export front, there were discussions centering on some U.S. product moving to India this week, with 8,000-10,000 metric tons of base oils quoted for shipment from the U.S. Gulf to West Coast India in the second half of October.

At the same time, there was mention of a couple of shipments moving from Europe and Asia to the Americas, with a 1,000-metric ton lot expected to be shipped from Antwerp, Belgium, to New Orleans, Louisiana, in early October, and about 12,000-metric tons of base oils and wax for lifting in Fawley, United Kingdom, and Rotterdam, the Netherlands, to New Jersey and Texas in mid-October, possibly for intra-company business. An 11,000-metric ton cargo had been discussed for shipment from Port Klang, Malaysia, to Durban, South Africa, and Brazil in late September.

Buying interest for U.S. products in Mexico remained lackluster as there had been several cargoes imported from Asia in recent weeks, which helped meet a good portion of the spot demand in that country. However, the tank space in Brownsville –  a transportation hub for barrels moving to Mexico–was heard to be filling up. The ample availability of product exerted downward pressure on spot pricing, but participants noted that lowering prices was not necessarily going to stimulate demand and that trimming production rates might be the only answer to managing growing supply.

There was a fair amount of attention focused on transportation disruptions caused by Hurricane Ian last week. The tropical storm had forced oil rigs in the Gulf of Mexico to shut down and major ports and rail facilities across the Southeast to halt operations. Jacksonville–the largest container port in Florida and a main trade gateway for auto shipments–shut down on Sep. 28 for several days, Bloomberg reported, and this was expected to cause delays in car deliveries. The port reopened on Oct. 1. In Georgia, the Port of Savannah – the largest container hub in the Southeast – allowed ships at anchor to leave toward safer locations, but closed for new arrivals. Trucking and railway companies also reduced or suspended shipments because of the storm.

These measures were expected to strain already troubled supply chains. “I expect that will be the major issue for some time to come,” a source commented. A few suppliers confirmed that truck transport to customers in Florida was somewhat disrupted, but other participants said they had not experienced any issues with transportation, except in those areas where the storm had hit the hardest.

A lubricant and finished products manufacturer’s plant in Georgia was shut down for two days as a precaution but did not suffer any damages from the storm and has since restarted.

Governors in South Carolina, Georgia, North Carolina and Virginia all declared emergencies in advance of the storm’s arrival. Ian came ashore on Sep. 28 in Florida, forcing residents to evacuate and leaving about 2.6 million people without electric power.

Aside from ongoing and fresh transportation and supply chain disruptions, lubricant and other finished products manufacturers have also had to deal with raw material shortages, including those of additives, for several months. While two major additive producers have lifted their force majeures, additive supply was not expected to improve overnight, and a scarcity of certain products was still expected in October as the suppliers maintained allocation programs. This was also likely to continue affecting base oil demand because lubricant manufacturers have had to reduce manufacturing rates due to the lack of additives.

Additionally, lubricant manufacturers were facing resistance to price increase initiatives. Several manufacturers had planned to implement increases in September and October to offset the repeated increases in base oil pricing and additives since the beginning of the year. While the last base oil price markup took place in June, most manufacturers had not been able to recoup the higher production costs yet. A major additive supplier also expected to implement an increase in October.

Now that base oil suppliers cut prices, it was more difficult to push increases through, and some lubricant manufacturers have either delayed or suspended their increase initiatives, sources noted. A number of sellers have even started to grant moderate discounts into select accounts to relieve the cost pressure on buyers of finished products. However, some lubricant suppliers were intent on achieving higher values and one manufacturer has even revised up the amount of its October increase.

Upstream, crude oil futures jumped by almost $4 per barrel on Monday and continued to move up on Tuesday on expectations that OPEC+ would decide to reduce output by more than 1 million barrels per day to bolster oil prices. This would be its most significant cut since the start of the COVID-19 pandemic, according to Reuters. The OPEC+ meeting was scheduled for Oct. 5. A surprise draw in crude and gasoline stocks reported by the American Petroleum Institute on Tuesday also pushed oil prices up.

On Oct. 4, West Texas Intermediate (WTI) November futures settled at $86.52/barrel, compared to $78.50/bbl on Sep. 27.

Brent futures for December delivery settled on the CME at $91.80/barrel on Oct. 4, from $87.27/bbl for November futures on Sep. 27.

Louisiana Light Sweet crude wholesale spot prices were hovering at $86.50/barrel on Oct. 3, compared to $79.87/barrel on Sep. 26, 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.