U.S. Base Oil Price Report

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A powerful winter storm sweeping across the United States over the last week forced several refineries and gas production sites to shut down temporarily. The freezing temperatures, combined with the year-end holidays, dampened business activity in large areas of the country, with few changes noted in the base oils market. The only exception may be a posted price decrease communicated by SK Lubricants Americas on Dec. 20, which will go into effect during the week.

As reported last week, SK will be decreasing its Group II+ 3 centiStoke prices by 40 cents per gallon, its API Group III 4 cSt grade by 15 cents/gal and its 6/8 cSt cuts by 25 cents/gal, effective Jan. 1. The price ranges posted on the Price Table below have been adjusted to reflect this decrease.

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No other posted price decreases were communicated by the publishing deadline. However, several producers have resorted to temporary value allowances or adjustments in a range of 10 cents per gallon to 50 cents/gal into select domestic contract accounts to attract fresh orders during the last few weeks of the year. A supplier was heard to have granted 40 cents/gal TVAs on all of its base oils.

The price reductions were mostly applicable to volumes purchased beyond those specified under contract, although in some cases, the TVAs applied to all term cargoes. The light and mid-viscosity grades within the API Group I and Group II categories received higher discounts due to ample availability. Yet not all buyers were able to take additional volumes despite the incentives, as they had limited storage space.

Even the API Group III cuts, which had so far been fairly immune to the price softening, surrendered to the downward pressure brought about by the prevailing supply and demand imbalance. Small TVAs were being granted on Group III 6 cSt and 8cSt cuts as these grades have seen further lengthening because Asian and Middle East suppliers have shipped more product to the U.S. in recent months given stronger demand and higher pricing. The ample supply and a need to remain competitive were likely the drivers behind the SK posted price decrease, sources speculated.

Export activity from the U.S. Gulf has been subdued due to the holiday period and a lack of buying interest from Mexico and other Latin American countries, but some transactions had taken place in previous weeks and these cargoes were expected to arrive in January. Suppliers hoped that Mexican demand would improve after the New Year, particularly if diesel prices increase. In terms of imports, it was heard that about 7,000 metric tons were being considered for shipment from Sitra, Bahrain, to the U.S. Gulf in mid-January, among other cargoes.

Starting on Dec. 23, Winter Storm Elliott brought frigid temperatures and strong winds to large swaths of the U.S., knocking out power and leaving more than 1.5 million homes and businesses without electricity. The storm also affected refinery operations in Texas, leading to reduced gasoline and diesel output. The severe winter conditions persisted into this week in many areas.

Among the affected refineries was Motiva’s Port Arthur, Texas, refining complex. Some units at the refinery shut down for two days because of an issue with hydrogen supply, according to sources. There was no confirmation from the producer directly on whether base oil production was affected as the company does not comment on the status of its operations.

Sources reported that the Marathon Petroleum refinery near Houston and one in Ohio were also shut down for a few days due to the polar temperatures, but there are no base oil plants at these sites. The Deer Park refinery in Texas, operated by Pemex, was idled late last week due to the winter storm and most units at the facility remained shut late on Sunday, Reuters reported. Operations at other refineries in Texas, run by ExxonMobil, Valero Energy, and LyondellBasell were also disrupted by the freezing weather, according to the Reuters article. It was difficult to ascertain whether other refineries or lubricant plants had been affected as participants were away during the holiday week.

The reports that a number of refineries might have suffered “freeze-ins” and production setbacks during the winter storm led to speculation that base oil supply might tighten in coming weeks. Market players expressed concern that the production disruptions caused by the storm may lead to a further tightening of supply in the first quarter of 2023, as a number of turnarounds were expected to reduce base oil availability, particularly of Group II grades. Both buyers and sellers have also arrived at the end of the year with low inventories on their hands, as a number of suppliers were able to meet their year-end targets.

An extended turnaround involving a catalyst change at a large Group II facility on the Gulf Coast was anticipated to start in late January and last almost two months. The producer was expected to have built stocks to cover requirements during the outage. A second Group II producer has also scheduled maintenance work in the first quarter. A third Group I and Group II producer was considering a two week-turnaround that was likely to begin at the end of March.

Availability of naphthenic base oils may also become more strained in the first few months of the new year given turnarounds and an expected pickup in demand. Naphthenic base oil producer San Joaquin Refining will be installing a a new vacuum distillation tower at its refinery in Bakersfield, California, starting in late January. The unit will likely be down for four weeks.

The naphthenic segment will be entering the new year on a fairly tight supply and demand balance, as planned and unplanned production outages during the second half of 2022, coupled with healthy demand, had led to snug conditions. The heavy pale oils were slightly longer than their lighter counterparts given a drop in demand over the last couple of weeks.

Looking forward into 2023, participants hoped the additive supply issues which plagued the lubricants market throughout much of the year would be resolved. While the situation has improved significantly, there were some segments that were still showing strained supply levels and prices have consequently gone up.

There was also hope that crude oil and feedstock prices would be more stable than in 2022. The year saw West Texas Intermediate futures spike to above $120 per barrel in early March and plummet to levels around $70/bbl in early December.

This week, West Texas Intermediate crude oil futures edged up only slightly on Tuesday on thin trading as there were concerns that the winter storms across the U.S. were disrupting logistics, refined products output and shale oil production. Prices were buoyed by expectations that the lifting of COVID-related restrictions in China would lead to a recovery of fuel demand in that country and an increase in tourism.

Additionally, there were reports that Russia might be considering crude production cuts due to the international sanctions imposed on its oil exports. The country has banned exports to those countries that have imposed a price cap on these products. U.S. and European markets were closed on Monday for the Christmas holiday.

On Dec. 27, WTI February futures settled on the CME at $79.53/barrel, compared to $76.09/bbl for January futures on Dec. 20.

Brent futures for February 2023 delivery settled on the CME at $84.33/barrel on Dec. 27, from $79.99/bbl on Dec. 20.

Louisiana Light Sweet crude wholesale spot prices were hovering at $81.97/barrel on Dec. 23, from $77.20/bbl on Dec. 19, according to the Energy Information Administration. (There was no trading on Monday, Dec. 26 due to the Christmas holiday).

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.

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