U.S. Base Oil Price Report

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The calendar year is winding down, but one company livened the base oil market a bit this week with an unusually late announcement of price cuts. SK Lubricants informed customers that it will lower the posted price on its 4 centiStoke API Group III oil by 15 cents per gallon, reduce its 6 and 8 cSt oils by 25 cents per gallon and cut its 3 cSt Group II+ oil by 40 cents per gallon, all effective Jan. 1.

Otherwise activity has slowed, as the United States market typically does with the approach of the year-end holidays. Supply continued to outstrip demand, but the surplus appeared more manageable than in November, as suppliers have placed extra barrels in the spot market or have reduced operating rates when necessary. Nevertheless, spot prices lost some territory as downward price pressure persisted.

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Spot prices experienced downward adjustments of a few pennies to 10 cents per gallon week on week, depending on the grade, with the light and mid-viscosity cuts within the API Group I and Group II categories undergoing the heftier revisions. Contrary to a few weeks ago, the Group III grades also succumbed to the pressure and retreated by 5 cents/gal to 10 cents/gal per gal. This was just a reflection on typical market behavior at the end of the year, sources explained, as suppliers tried to encourage buyers to take additional volumes.

Buying interest on the export front was mixed, with some inquiries emerging in Latin America, but the gap between bids and offers hampered the conclusion of some of the proposed transactions. Export demand has ebbed on account of the holidays as many participants in Latin America were expected to be away from their workplaces over the next couple of weeks.

Mexican demand was not anticipated to improve until mid-January, because conditions in various lubricants segments remained lackluster and it may take some time for the different segments to gain momentum. There were several cargoes waiting to be moved from Brownsville to Mexico, and some of them were not likely to change hands for a couple of weeks at least. Demand for the lighter grades for diesel blending could see a revival in January if fuel subsidies are phased out. The Mexican government’s fuel subsidy – a fiscal stimulus coming directly from the treasury and financed in part by oil exports – was implemented to fight high fuel prices and keep inflation in check. Mexico’s president, Andres Manuel Lopez Obrador, promised back in June to keep the subsidies until the end of 2022, but it was not clear whether they would be maintained in 2023.

There continued to be talk about a number of domestic suppliers granting temporary voluntary allowances or adjustments in a range of 10 cents per gallon to 50 cents/gal into select domestic contract accounts. The larger discounts were applicable to the light and mid-viscosity grades given more ample availability, and in some cases were only applicable to volumes purchased beyond those specified under contract.

Group III 6 centiStoke and 8 cSt buyers have seen small TVAs as well, because demand for these cuts was not as strong as for the 4 cSt grade and availability of these grades has increased. Since demand for Group III has weakened in other regions such as Asia, suppliers have been shipping more volumes to the U.S. where demand was healthier and prices higher, contributing to the lengthening of supplies.

Producers expected paraffinic base oil supply to tighten in the first quarter of 2023 and they anticipated this condition to support prices. If crude oil values continued to climb, they might prop up base oil prices even further, sources said. A need to replenish stocks or build inventories in the first quarter ahead of plant turnarounds was expected to offer additional support.

At that time, the market might experience a snug supply and demand scenario, with base stock suppliers unable to offer many spot cargoes due to a busy plant maintenance schedule. An extended turnaround for a catalyst change at a large Group II facility on the Gulf Coast was likely to start in late January and last almost two months. The producer was expected to have built inventories to cover requirements during the outage. 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 that would begin at the end of March.

On the naphthenic base oils front, fundamentals were largely unchanged from a week ago, with supply heard to be on the tight side on account of production outages throughout the second half of 2022 against a backdrop of healthy demand.

Looking ahead, naphthenic base oil producer San Joaquin Refining has planned a turnaround at its refinery in Bakersfield, California, starting in late January 2023 and lasting approximately one month. This might exacerbate the prevailing snug conditions for pale oils at a time when demand was expected to pick up.

The softer base oil conditions seen over the last few weeks, coupled with general economic uncertainties, generated reverberations in downstream lubricant markets. Some blenders have acquiesced to discounts in order to find a home for their products before December 31. Others stood firm by their pricing as costs have increased during the year.

The additive supply situation has seen a significant improvement compared to three months ago, but high additive prices were affecting blending operations. Buyers hoped that additive suppliers would offer some relief in the shape of discounts or decreases in the first quarter.

On December 20, WTI January futures settled on the CME at $76.09/barrel, compared to $75.39/bbl on Dec. 13.

Brent futures for February 2023 delivery settled on the CME at $79.99/barrel on Dec. 20, down from $80.68/bbl on Dec. 13.

Louisiana Light Sweet crude wholesale spot prices were hovering at $75.28/barrel on Dec. 19, from $73.56/bbl on Dec. 12, 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.