U.S. Base Oil Price Report

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A seasonal slowdown in demand, the release of hurricane-related product provisions, and the return to production of a number of plants following output disruptions had all conspired to place downward pressure on base oil pricing in recent weeks. While posted prices remained unchanged, spot prices had been more exposed to downward adjustments as sellers sought to dispose of barrels ahead of Dec. 31. However, this week, participants reported a more balanced market and stable pricing, with climbing crude oil values providing additional support.

A reduction of surplus volumes was partly attributable to suppliers having made concerted efforts to attract buyers – both at home and on the export front – by offering competitive prices. This strategy seemed to have partially worked as the extra supplies have dwindled and spot values have stabilized. Some refiners had also resorted to lowering base oil production rates and streaming more feedstocks into fuel output. Margins for diesel had been more attractive and this had offered more incentive for refiners to favor distillates output, but diesel prices have softened.

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The more prominent spot decreases had applied to export prices as suppliers sought to entice buyers in other regions. Some cargoes were heard to have been concluded for shipment to India. There was also buying interest for heavy API Group I and Group II grades from Latin America, but availability of these cuts was more limited in the U.S. and prices were not workable for the time being. Demand from Mexico remained sluggish, and it was not expected to recover until after the year-end holidays. There were also plentiful supplies in storage tanks in Brownsville, Texas, from where many cargoes are shipped to Mexico.

United States suppliers also resorted to granting temporary voluntary allowances or adjustments in a range of 10 cents per gallon to 50 cents/gal into select domestic term accounts to forestall posted price adjustments. The heftier discounts were applicable to the light and mid-viscosity grades within the Group I and Group II category as these cuts were more plentiful.

Buyers of Group III 6 centiStoke and 8 cSt have sporadically obtained TVAs, as these grades were more ample than the 4 cSt cut, but the discounts were smaller and not widespread.

Producers expected supply to tighten in the first quarter of 2023 and they anticipated this condition to lend prices more stability, particularly if crude oil prices continued to climb. Buyers were also expected to pad their inventories ahead of upcoming turnarounds.

The market could experience a snug supply/demand scenario and limited spot availability in the first quarter because several plants were expected to undergo maintenance. An extended turnaround at a large Group II facility on the Gulf Coast was likely to start in late January and last up to two months. A second Group II producer was also planning to complete some maintenance in the first quarter. A third Group I and Group II producer was considering a two week-turnaround towards the end of March.

There were also some encouraging economic signs as inflation in the U.S. eased more than expected in November. Reports showed that consumer prices had risen 7.1 percent from a year ago, according to The New York Times. Federal Reserve officials will gather in Washington this week and were expected to release their latest rate decision on Wednesday. Observers speculated that they would raise interest rates by half a percentage point – a drop from several consecutive three-quarter point moves previously. The more optimistic projections may have a positive impact on base oil and lubricant consumption in the coming months.

Lubricant manufacturers were still dealing with lingering additive supply issues, firm additive and transportation costs and softening demand. While a few blenders have acquiesced to granting discounts to finished products customers, this situation did not seem prevalent, as some blenders were trying to keep steady pricing.

In the naphthenic base oils camp, fairly tight conditions propped up the current base oil price structure, even as crude oil prices had been on a decline over the last four weeks. Recent plant maintenance and a few production hiccups have prompted a couple of producers to rebuild inventories. This drive, coupled with healthy demand, have resulted in a tightening of supplies. Export shipments to Europe and Latin America continued to be concluded, which has also contributed to more balanced supplies at home.

San Joaquin Refining has scheduled a turnaround at its refinery in Bakersfield, California, starting in late January 2023. The company will be installing a new vacuum distillation tower and the unit was expected to be down for approximately one month.

Upstream, West Texas Intermediate crude oil futures jumped by more than $2 per barrel to over $75 per barrel on Tuesday as the dollar slumped on slowing inflation and there were concerns about the Keystone pipeline outage. The pipeline, which ships 620,000 barrels per day of Canadian crude to the U.S., was shut after a spill last week, Reuters reported. This could result in reduced supply to the key crude hub of Cushing, Oklahoma.

On Dec. 13, WTI January futures settled on the CME at $75.39/barrel, compared to $74.25/bbl on Dec. 6.

Brent futures for February 2023 delivery settled on the CME at $80.68/barrel on Dec. 13, from $79.35/bbl on Dec. 6.

Louisiana Light Sweet crude wholesale spot prices were hovering at $73.56/barrel on Dec. 12, from $78.13/bbl on Dec. 5, 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.