U.S. Base Oil Price Report

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Market participants agreed that it was difficult to forecast product needs for upcoming months as recent trends have not been consistent with those seen in previous years. While base oil supply typically outstrips demand in the last three months of the year, the situation this year has been exacerbated by ongoing additive supply issues, which have led to reduced base stock demand from many lubricant and finished products manufacturers. Additionally, ongoing inflation and economic uncertainties have also dampened consumer confidence and fuels and lubricants requirements.

The additive supply conditions have certainly improved compared to two or three months ago, but sources said that there were some lingering issues that affected certain sectors more than others and conditions were not anticipated to be back to “normal” until mid 2023. There has been a dearth of additives for gear oils and certain industrial lubricants, while an additive supplier has also told its customers that a number of products would be discontinued. While additive suppliers had intended to increase prices, a slowdown in lubricant demand has made them reconsider their plans and some of them have started to offer discounts into select accounts instead.

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The base oil supply and demand imbalance continued to place downward pressure on values, with spot prices edging down week on week as suppliers tried to encourage orders, particularly on the domestic front as export opportunities have dwindled. Muted buying interest in many countries and steep freight rates hampered the conclusion of business. Decreases between 5 cents per gallon and 8 cents/gal were mentioned for the light and mid-viscosity grades this week in the API Group I and Group II categories.

Mexican base oil demand has weakened along with a slowdown in the lubricants segment, with activity not expected to improve significantly until the first quarter of 2023. Buyers continued to draw material from bulging storage tanks, which had been filled by cargoes arriving from the United States, Asia and Europe.

Prices for the Group III grades were stable on steadfast demand, although the 6 centiStoke and the 8 cSt grades were more plentiful and therefore, prices were exposed to downward pressure. Some product without approvals was also available at lower levels, according to reports.

While there continued to be strong demand for diesel, margins have weakened compared to base oils and there was less incentive for refiners to use light grades for fuel blending or to trim base stock production rates.

Some U.S. suppliers were heard to be granting temporary voluntary allowances in a wide range into select domestic term accounts as a means to avert posted price adjustments, with the higher discounts applicable to the lighter grades. Producers expected the market to tighten in the first quarter and they anticipated this condition to lend prices more stability.

Base oil supply may become strained early next year given a fairly busy maintenance schedule. An extended turnaround at a large API Group II facility on the Gulf Coast, which was expected to start in late January and could last up to two months, was anticipated to limit spot availability. A second Group II producer was also expected to complete some maintenance in the first quarter. A third Group I/Group II producer was likely to start a two week-turnaround towards the end of March as well.

Last week, there had also been some concern about the possibility that a national rail strike would paralyze rail activity throughout the country and cripple economic activity, but Congress and President Biden stepped in and introduced an agreement between major railroad companies and their workers, averting the strike. The agreement gives rail workers a pay raise and other benefits, but did not address one of their grievances related to obtaining paid medical leave.

In the naphthenic base oils camp, buying interest remained healthy, particularly from the transformer oil, and tire and rubber manufacturing segment. Demand from Europe has also been robust. A recent planned turnaround at a naphthenic base oil plant and unexpected production issues at another facility earlier in the year have contributed to a snug supply and demand ratio. An upcoming turnaround at a third unit may prolong the snug conditions, offering support to the current price structure.

San Joaquin Refining confirmed that the company would be starting a turnaround at its refinery in Bakersfield, California, in late January 2023. The company will be installing a new vacuum distillation tower and the unit was expected to be down for approximately four weeks.

The tight conditions were supportive of naphthenic base oil prices, despite a slump in crude oil and feedstock values in recent weeks.

Crude oil futures fell during a frantic trading session on Tuesday, with West Texas Intermediate futures settling at their lowest level this year on renewed economic uncertainties, a slowdown of the European economies due to the high cost of energy and rising interest rates, and news that OPEC+ had decided not to cut production further.

On Dec. 6, WTI January futures settled on the CME at $74.25/barrel, compared to $78.20/bbl on Nov. 29.

Brent futures for February 2023 delivery settled on the CME at $79.35/barrel on Dec. 6, from $83.03/bbl for January futures on Nov. 29.

Louisiana Light Sweet crude wholesale spot prices were hovering at $78.13/barrel on Dec. 5, from $78.85/bbl on Nov. 28, according to the Energy Information Administration.

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

Posted Paraffinic Base Oil Prices

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.