U.S. Base Oil Price Report

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Several naphthenic base oil producers have communicated price increases, driven by rising crude oil and feedstock prices, together with a tightening supply/demand scenario. On the paraffinic side, producers were feeling the squeeze of higher feedstock costs too, but lukewarm demand and ample inventories were partly diluting the pressure.

Late last week, Cross Oil informed its customers that the company would be increasing the price on all grades of naphthenic base oils by 25 cents per gallon, with an effective date of Feb. 11. “This increase is being driven by market factors including increases in crude oil, natural gas, and continued inflationary pressure on other inputs,” the company explained.

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Ergon also announced a 25 cents per gallon increase in pricing of its naphthenic base oils in the North American market, effective Feb. 11. The increase will apply to all viscosities, the company said in a press release.

Calumet communicated a 25 cents/gal increase as well, scheduled to go into effect on Feb. 11.

San Joaquin Refining announced a 25 cents/gal increase, with an effective date of Feb. 8.

Other naphthenic suppliers were mulling similar price moves, according to sources, but further details were unavailable at press time. A number of naphthenic producers had communicated increases last November, but these hikes were not widely implemented. The latest increases, however, were anticipated to gain traction on the back of higher-priced feedstocks, tighter supply and consolidated supplier efforts.

San Joaquin was preparing for a turnaround at its Bakersfield, California, refinery. The start of the shutdown has been pushed to Feb. 12 from an original date of Feb. 1 because of a delay on the delivery of required parts. The unit, which has a nameplate capacity to produce 8,100 barrels per day of naphthenic base oils, was expected to be restarted around March 5.

Valero was heard to have started a turnaround at its Three Rivers, Texas, plant on Jan. 30, which will last two to three weeks, according to sources. The plant can produce 2,400 b/d of naphthenic base oils.

Cross Oil was anticipated to complete a short turnaround at its Smackover, Arkansas, plant in March. The plant has a capacity of 5,000 b/d of naphthenic base oils.

These maintenance programs were likely to contribute to a further tightening of supply. Producers have been building inventories ahead of the turnarounds, which has led to a reduction in spot availability. The price increase announcements were expected to trigger a rush on orders from customers eager to beat the markups.

“Whenever there are a couple of naphthenic turnarounds, even if they are smaller producers, there still seems to be an impact on the market. Having some production offline when demand should be ramping up should create upward pricing pressure,” a source noted.

On the paraffinic side, producers were also feeling the pressure of climbing crude oil and feedstock costs. However, there was more hesitation surrounding posted price adjustments because spot prices continued to soften and supply was plentiful.

A couple of API Group II cargoes were mentioned as being still available for export, with offers going to India and Latin America. United States suppliers may face competition from Asian sellers, as several cargoes were being discussed or have been concluded to move from Southeast and Northeast Asia to different ports in South America and the Caribbean.

There continued to be downward pressure on spot indications in the U.S., both for domestic and export transactions, as some suppliers were in possession of extra barrels of base stocks. While some producers have decided to trim production of light grades to achieve a more balanced supply/demand ratio, there were still a number of cargoes on offer, with buyers hoping to attain more competitive prices. Some consumers were holding back on purchases on concerns that spot prices would be further reduced. “I feel that some players are hesitant to buy, fearing that spot pricing could drop further,” a source observed.

The spread of the Omicron variant has exacerbated lingering supply chain disruptions due to staff absences and the lack of truck drivers to conduct deliveries. Shortages of additives and other raw materials have led to reduced manufacturing rates at blending plants, which in turn has triggered a slowdown in base oil requirements. Labor shortages were expected to last at least through the end of the year, and ocean freight transportation may see disruptions for even longer, experts commented. “One day it’s the additives, the next is packaging, and so on. These are problems that we didn’t have to deal with in the past,” a source remarked.

Despite all these issues, most suppliers were fielding plenty of base oil orders and some of the lighter grades have tightened, particularly as producers have started to adjust production rates or redirected the light oils into the distillates stream.

Finished lubricant producers were expected to continue the implementation of price increases of up to 16% that were announced back in November and December. The markups would be rolled out between December 2021 and February 2022 and were fueled by the steeper costs of raw materials, additives, packaging, labor and freight.

At least two major additive producers have expressed their intention of increasing prices by 15% on Jan. 31 and Feb. 21, respectively, sources said. Securing enough additive supply for blending operations was still difficult for many manufacturers, with gear oil additives and other automotive and industrial products being particularly elusive and difficulties expected to persist until the middle of the second quarter.

Upstream, crude oil futures retreated slightly early in the trading session, but settled at multi-year highs despite indications that OPEC+ might consider an increase in output at a meeting later this week. The organization has been producing less oil than originally agreed for months, analysts said. There was persistent pressure on prices due to geopolitical concerns related to a potential Russian invasion of Ukraine and ongoing tensions in the Middle East.

On Feb. 1, West Texas Intermediate (WTI) March futures settled at $88.20/barrel, compared to $85.60/barrel on Jan. 25.

Brent futures for April delivery settled at $89.16/barrel on the CME on Feb. 1, from $88.20/bbl for March futures on Jan. 25.

Light Louisiana Sweet crude wholesale spot prices were hovering at $91.31/barrel on Jan. 31 and had settled at $86.53/bbl on Jan. 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.