U.S. Base Oil Price Report


Unlike cryptocurrency markets, the base oils sector navigated through fairly smooth waters this week, with posted prices reported as stable despite the current supply and demand imbalance. Some producers have cut back production rates to manage mounting inventories and avoid price deterioration. Some refiners were streaming more feedstocks into distillates output, while others have lowered price expectations as a means to attract orders before the end of the year.

The base stock oversupply situation has not come as a surprise, as availability tends to lengthen in the last quarter and suppliers typically adjust production rates accordingly. This year, the fact that diesel prices have spiked amid a global supply crunch offered even more of an incentive for light viscosity cuts to go into diesel and for more feedstocks to be apportioned to distillates production given better margins.

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There were no reports of base oil posted price adjustments, but spot export values continued to be exposed to downward pressure on account of the ample supply against lackluster domestic demand. The API Group II light grades and the Group III 6 cSt and 8 cSt had reportedly edged down by around 5 cents per gallon to 8 cents/gal over the last week, but business has quieted down, sources said.  

Base oil requirements started to decline at the end of the U.S. driving season in early September and were also affected by economic uncertainties and growing inflation, which impacted demand for lubricants and other finished products. It was heard that some lubricant manufacturers had started to offer discounts or decreased their pricing to retain customers or regain market share – a sign that consumption levels had weakened. The lubricant decreases – although fairly widespread – were not significant and they were negotiated mostly on a case-by-case basis, not publicly announced. Lubricant manufacturers had previously tried to implement increases to offset base oil price hikes and other mounting costs such as steeper additives and transportation values, which had driven up expenses throughout most of the year. However, while most base oil producers introduced decreases in September – which partly took away some of the pressure on lubricant values – additive prices have moved up.

Each base oil segment exhibited a slightly different supply and demand picture. Group I availability was described as tighter than Group II supplies as refiners have adjusted production rates to ameliorate the lengthening supply situation, and as a result, some of the heavier grades such as bright stock have tightened. Additionally, there were reports of U.S. cargoes moving to Africa and Latin America, which may also have contributed to the tighter conditions.

Mexican buyers did not appear interested in larger cargoes and were securing truck-sized lots out of storage tanks in Brownsville, as they were concerned that prices may continue to soften, but most participants estimated that prices had bottomed out.

Group II availability levels increased after two producers were able to ramp up production rates, following technical hiccups in previous months. A third producer, Motiva, restarted its Group II 600 neutral unit last week, following a routine maintenance program which lasted approximately one month. There were reports of Group II export cargoes being offered to India, Europe and various destinations in Latin America. It was heard that 7,000-12,000 metric tons were expected to be shipped from the U.S. Gulf to Riga, Latvia, at the end of November or early December.

While U.S. prices of material being offered to Latin America were considered too steep by some buyers, Asian offers appeared competitive despite the high freight rates, leading to a few transactions being concluded. A 2,200-metric-ton cargo was being discussed for shipment from South Korea to Peru at the end of November. Another 4,000-7,000 metric tons of base oils were on the table for shipment from a port in Northeast Asia to Brazil at the end of November or early December.

Availability of Group III grades had so far been less exposed to destabilizing forces as supply of imports had been affected by turnarounds and production issues at plants in Asia and the Middle East, while U.S. demand was strong. However, production levels in those regions have increased, leading to additional availability, with several large cargoes expected to reach the U.S. in coming weeks. This coincided with a slowdown in demand for Group III cuts in the U.S. as lubricant consumption has declined and additive shortages had also led to reduced manufacturing rates at several blending plants, although consumption of the 4 cSt grade appeared to be holding.

On the naphthenic base oils front, the tightness observed in recent weeks has started to ease as plants were running well and demand from a number of automotive industry-related segments has softened.

Calumet restarted its naphthenic base oils plant in Princeton, Louisiana, earlier this month after successfully completing a maintenance program. This was anticipated to allow for more pale oil barrels to reach the market.

Unplanned production issues at second plant in August/September, together with Calumet’s turnaround, along with healthy demand had led to a temporary tightening of supplies. However, the affected producer was heard to be rebuilding inventories and was able to offer more volumes than a few weeks ago, according to sources.

Downstream, additive availability was on the rise, although some pockets of the market remained troubled by a lack of ready supplies, which in turn was affecting blending operations. While the force majeures at two major producers’ facilities have been lifted and allocations have been eased, the additives segment was anticipated to be tight for the next several months and prices remained exposed to upward pressure as a result.

Upstream, crude oil futures settled higher on Tuesday on an American Petroleum Institute report of a large draw in U.S. crude inventories this week, and news of oil supply disruptions to Hungary via the Druzhba oil pipeline owned by Russia’s Transneft. Prices had slumped on Monday as OPEC lowered its prediction for global demand in 2022, while an increase in COVID-19 cases in China continued to fuel concerns about a drop in crude demand from the world’s largest importer.

Chinese refiners appeared ready to cut back on Russian crude purchases in December as the implementation of European Union sanctions drew near amid uncertainty surrounding the G7’s plan to cap Russian oil prices. This has led to a build-up in Russian crude supplies and an accompanying drop in pricing. China and India have become major buyers of Russian oil since the Ukraine war broke out. The European Union will ban imports of Russian crude and oil products on Dec. 5 and Feb. 5, respectively, Reuters reported.

On Nov. 15, WTI December futures settled on the CME at $86.92/barrel, compared to $88.91/bbl on Nov. 8.

Brent futures for January 2023 delivery settled on the CME at $93.86/barrel on Nov. 15, from $95.36/bbl on Nov. 8.

Louisiana Light Sweet crude wholesale spot prices were hovering at $89.85/barrel on Nov. 14, from $95.30/bbl on Nov. 7, 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.