U.S. Base Oil Price Report


Supply and demand fundamentals continued to weigh on base oil pricing, as consumption levels have slipped due to seasonal patterns, while steady production at most refineries and the release of hurricane-related stockpiles resulted in ample availability of paraffinic grades. The turnaround at a major United States facility in October had a more limited impact than anticipated. On the naphthenic side, there has been a tightening of supply, propping up current values.

API Group II and Group III producer Motiva was expected to restart its plant in Port Arthur, Texas, early next week, following a scheduled turnaround that lasted one month and was completed on the unit that produces the Group II 600 neutral only. Despite the shutdown, the company did not place customers on allocation, and participants said that there had not been any shortages of product since the producer had built inventories to meet contractual obligations. The Group II 600 neutral grade had temporarily been snug, but the increase of production rates at a second U.S. Group II facility that had suffered setbacks in September helped relieve some of the tightness, sources said.

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A couple of turnarounds have also been scheduled at Group II facilities in the first half of 2023, with one anticipated to start in the first quarter and the second in the second quarter. The producers were likely to begin building inventories ahead of the turnarounds to cover product needs during their outages, but this was not anticipated to impact the market significantly, unless there were unexpected production disruptions during that period.

Group I and Group II suppliers continued to assess possibilities of exporting excess supplies of base oils to help achieve a more balanced situation at home, but it has not been an easy task as Asian base oil barrels were being offered at competitive prices. This week, a 2,000-metric-ton cargo was heard to be on the table for shipment from Houston, Texas, to Barranquilla, Colombia, in the first half of November. There were hopes for potential deals into Mexico, Brazil and other destinations in the Americas, but no other transactions had surfaced by press time. Shipments of U.S. products to Mexico take place regularly, but volumes have declined as buying appetite remained lackluster.

The Group III segment was less likely to see an oversupply situation because most of the material utilized in the U.S. is imported, and there have been turnarounds and production issues in Europe and the Middle East, where a large portion of the imported barrels are sourced. These conditions have resulted in strained availability of the Group III base oils, in particular the 4 centiStoke grade.

On the naphthenic base oils front, Calumet was expected to complete a maintenance program at its naphthenic base oils plant in Princeton, Louisiana, within the next few days. The scheduled turnaround, together with unexpected production hiccups at another supplier’s facility back in August amid steady demand have led to a balanced-to-tight pale oils supply and demand ratio.

Consumers were hopeful of a downward posted price adjustment for paraffinic oils since supply has lengthened and demand was not expected to pick up until February next year. Decreases are not uncommon during the last quarter of the year when suppliers try to entice buyers to take as much product as possible off their hands to reduce the product overhang. However, producers were also keeping an eye on crude oil and feedstock prices, which have been on an upward trend over the last week.

There were rumblings of buyers requesting temporary voluntary allowances (TVAs) on contract shipments given plentiful supply and receding spot values. While there were no reports of a general decrease in pricing, some suppliers may be granting isolated discounts on a case-by-case basis, depending on volumes and other terms, but further confirmation was not forthcoming.

Expectations of a global supply crunch of diesel amid rising values might encourage refiners to produce more fuels and limit the feedstock supply going into base stock output. Vacuum gasoil premiums over West Texas Intermediate crude were also hovering at lofty levels. Producers therefore needed to maintain healthy base oil margins to be able to justify production against other refined products.

Until early October, a shortage of additives caused by production issues at two major manufacturers’ sites earlier in the year had led to reduced demand for a number of base oils as blending plants were run at reduced rates. The additive supply situation has improved, allowing the additive suppliers to lift their force majeures and gradually relax their sales allocations. As a result, there has been an uptick in base oil requirements – particularly of the Group III grades – prompted by increased manufacturing rates at several blending facilities since more additives became available, yet additives were expected to remain snug until at least the first quarter of next year.

Upstream, crude oil futures climbed on Tuesday morning, recovering from losses in the previous session, as a significant crude and gasoline draw in the U.S. and a weaker dollar counteracted concerns about a potential drop in Chinese crude demand because the country’s stringent zero-COVID policies have led to additional lockdowns.

The American Petroleum Institute reported an unexpected crude oil draw of 6.53 million barrels this week, despite the Department of Energy’s release of 1.9 million barrels from the Strategic Petroleum Reserves last week. U.S. crude production is just 300,000 bbl/day higher than levels seen at the start of the year, and still 1.1 million bbl/d short from levels seen at the beginning of the pandemic, according to OilPrice.com.

On Nov. 1, WTI December futures settled at $88.37/barrel, compared to $85.32/bbl on Oct. 25 – approximately a $3/bbl increase from the previous week.

Brent futures for January 2023 delivery settled on the CME at $94.65/barrel on Nov. 1, from $93.52/bbl for December 2022 futures on Oct. 25.

Louisiana Light Sweet crude wholesale spot prices were hovering at $89.24/barrel on Oct. 31, from $88.27/bbl on Oct. 24, 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.