U.S. Base Oil Price Report

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Market participants kept an eye on transportation this week, as historically low water levels on the Mississippi River and a potential rail strike may impact deliveries of lubricants, base stocks and other raw materials. Meanwhile, base oil supplies continued to outpace demand, weighing on spot and posted prices, but postings appeared impervious to the downward pressure this week.

A severe drought in the Midwest caused the water levels in the Mississippi River and its tributaries to drop to record lows, causing issues to transportation on one of the nation’s most vital waterways. “The dwindling water levels have not only choked barge traffic but forced the vessels to significantly lighten their loads. The cost of barge shipping has surged,” The New York Times reported. The drought was beginning to ease as winter storms had brought some rain and snow, but it could be weeks before there is any marked improvement, local media reports said. Base oil suppliers often ship material in barges as it is an economical and effective means of transportation compared to rail and trucks.

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Additionally, the United States could face a paralyzing rail strike after members of the nation’s largest rail union representing the industry’s conductors rejected a tentative labor deal with freight railroads, CNN.com reported. While workers will remain on the job until at least early next month as negotiations continue, if no agreement is reached and the strike goes on for an indeterminate period, it could have devastating effects on supply chains and consumer prices.

On the base oils front, a seasonal slowdown in consumption levels, combined with the release of inventories that had been kept for potential hurricane-related output disruptions have resulted in a supply and demand imbalance in the U.S. Generally steady production rates at most base oil plants have added to the lengthening supplies. A number of refiners were streaming more feedstocks into fuel production, as prices of distillates such as diesel have risen, and base oil output was reduced as a result. This might help taper down the product overhang, sources explained.

While producers were doing their outmost to keep posted prices from falling, spot values of the more readily available mid-viscosity and light-vis grades in the API Group I and II categories have slipped between 5 cents per gallon and 10 cents/gal week on week on abundant supplies and softer crude oil and feedstock prices. Within the Group III segment, the 6 centiStoke and 8 cSt grades have also fallen as demand has declined. The price adjustments reflected suppliers’ efforts to place product before the end of the year. There were also reports of temporary value allowances (TVAs) on contract prices being granted on a case-by-case basis, but these did not seem widespread. Suppliers were watching crude oil and feedstock prices closely, as values were volatile and edged up after spiraling downward for several sessions.

At the same time, buyers were trying to lower inventory levels before year-end and were mostly limiting their purchases to cargoes secured under contract. Supplier sources explained that there was no sense in reducing prices even more as consumers were not interested in acquiring additional volumes, no matter how low that price levels went. There was hope that a seasonal pick-up in demand in the first quarter of the year, together with the start of a turnaround at a major producer’s plant on the U.S. Gulf would offer support to posted prices.

Suppliers were also exploring export options to Latin America, Europe, Africa and India, but business remained muted. It was heard that a Group II supplier had offered several barrels of Group II 100 neutral into Mexico, while a second Group II supplier was considering exporting over 12,000 metric tons of mixed grades to possibly India. There were expectations that some of the light grades moving into Mexico would be used for fuel blending, but the low buying ideas hampered the conclusion of deals. Storage tanks in Brownsville were close to capacity because several deep-sea cargoes had arrived over the last couple of months, so it was difficult to arrange additional shipments to that hub for onward shipment to various Mexican locations.

On the naphthenic base oils side, supply and demand were deemed more balanced than on the paraffinic side, with some segments such as those serving the transformer oil industry showing a slight tightening on account of healthy requirements.

Calumet’s naphthenic base oils plant in Princeton, Louisiana, was restarted earlier this month after a successful maintenance program and participants hoped for more pale oil barrels to enter the supply system.

Unplanned production issues at a second plant in August/September had been resolved last month and the affected producer was heard to be meeting contractual obligations and rebuilding inventories.

There were reports that San Joaquin Refining was planning a turnaround at its plant in Bakersfield, California, in late January 2023, which could lead to a tightening of naphthenic base oil supply. A confirmation of the turnaround schedule was not available by publishing deadline.

Lubricant blenders have had to deal with additive shortages for quite some time, but availability has improved. While the force majeures at two major producers’ facilities have been lifted and allocations have started to be relaxed, additive supply might remain tight into the first quarter of 2023, supporting firm prices. At the same time, lubricant manufacturers have faced resistance to price increase initiatives announced earlier in the year as base oil producers had lowered prices in September and finished products demand has softened. This has prompted a number of blenders to either discreetly withdraw increase announcements or offer slight discounts, according to sources.

Upstream, crude oil futures jumped on Tuesday after top exporter Saudi Arabia said OPEC+ would not be revising output levels up to bring oil prices down, and this outweighed global recession worries and concerns about China’s pandemic-related restrictions. The Chinese government ordered fresh lockdowns and the closure of parks and museums in Beijing as the number of COVID-19 cases jumped. The restrictions on the population’s mobility resulted in lower fuel and crude oil consumption levels in China – the world’s second largest oil consumer.

In terms of the Russian war on Ukraine and upcoming sanctions on Russian oil exports, the European Union has diluted the strength of the sanctions for a price cap on Russia’s oil exports by delaying its full implementation and softening key shipping provisions, Bloomberg reported.

On Nov. 22, WTI January futures settled on the CME at $80.95/barrel, compared to $86.92/bbl for December futures on Nov. 15.

Brent futures for January 2023 delivery settled on the CME at $88.36/barrel on Nov. 22, from $93.86/bbl on Nov. 15.

Louisiana Light Sweet crude wholesale spot prices were hovering at $84.74/barrel on Nov. 21, from $89.85/bbl on Nov. 14, according to the Energy Information Administration.

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

Posted Paraffinic Base Oil Prices

November 23, 2022

(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.

*ExxonMobil prices obtained indirectly.
**Rerefiner