U.S. Base Oil Price Report

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The freezing winter storm that forced a number of United States refineries, natural gas wells and utility companies to close last week may have had a more limited impact on base oils than expected, even though at least a couple of plants were shut down due to the frigid temperatures. Since many participants were away during the holiday week, the full impact was not expected to be assessed until activity picks up again in the coming days.

According to reports, some units at Motiva’s Port Arthur, Texas, refining complex had shut down for two days during Winter Storm Elliott because of an issue with hydrogen supply. It was not clear whether all the units had restarted, as some refineries might take up to two weeks to resume full output. There was no confirmation from the producer directly as the company does not comment on the status of its operations.

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The Cross Oil naphthenic base oil refinery in Smackover, Arkansas, had shut down as a precautionary measure ahead of the storm, but suffered no significant damage from the freeze. The unit was back up by the afternoon of Dec. 28 and is currently running at 100%, a company source said.

The reports that a number of refineries might have suffered “freeze-ins” and production setbacks during the winter storm had led to speculation that base oil supply might tighten in coming weeks. This would be particularly impactful if it were combined with the plant turnarounds that are scheduled during the first quarter of 2023. Sources also noted that many buyers and sellers had likely reached the end of the year in possession of minimal inventories, and any supply disruptions could potentially result in product shortages. The similarly powerful Winter Storm Uri in February 2021 had led to production outages and a chaotic supply situation.

Several plant events will be taking place during the first quarter, including an extended turnaround and catalyst change at a large API Group II facility on the Gulf Coast that 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, but spot volumes were anticipated to be reduced. 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.

The naphthenic base oils segment may also see tightening supplies along with an uptick 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 later this month, and expects the unit to be down for four weeks. Planned and unplanned production outages during the second half of 2022, coupled with healthy demand, had already strained pale oil supply in the weeks leading to Dec. 31.

In terms of pricing, a posted price decrease communicated by SK Lubricants Americas on its Group II+ and Group III base oils went into effect on Jan. 1, marking the first such movement for the new year and the first downward adjustment for Group III base oils in more than two years. The company had previously implemented several price increases, which were prompted by the prevailing market conditions at the time of the adjustments.

SK decreased its Group II+ 3 centiStoke prices by 40 cents per gallon, its Group III 4 cSt grade by 15 cents/gal and its 6/8 cSt cuts by 25 cents/gal.

The decrease was thought to have been triggered by lengthening supplies as the year came to an end and buyers preferred to use up existing inventories, or release stocks that had been kept in case of supply disruptions during hurricane season. Many Group III cargoes from Asia and the Middle East had been moved to the U.S. and the Americas in the previous months as prices were more attractive than in the source regions and plants had resumed production following turnarounds. Softer crude oil and feedstock prices were also thought to have driven the price revision.

In the weeks leading up to the New Year’s holidays, several producers had granted temporary value allowances or adjustments in a range of 10 cents per gallon to 50 cents/gal into select domestic contract accounts to promote business and lower inventory levels. A supplier was heard to have granted 40 cents/gal TVAs on all of its base oils. These adjustments were thought to have been applied as an alternative to a general posted price decrease.

Spot prices had also lost territory in the lead-in to the holidays, with the Group I and Group II light and mid-viscosity grades having been exposed to more downward pressure than their heavier counterparts.

Nevertheless, prices in the U.S. and Latin America continued to hover above those in other regions, which attracted imports from several sources, particularly Northeast Asia. A South Korean 7,000-metric ton cargo was mentioned for shipment to Ecuador in March, and other transactions were being considered as well, although trading was muted due to the New Year holidays, according to sources.

Market players kept a watchful eye on crude oil and feedstock prices, as developments in that segment might affect the course of base oil pricing moving forward.

West Texas Intermediate (WTI) crude oil futures had edged up the previous week on concerns about supply disruptions caused by the freezing winter weather but fell sharply on Tuesday amid concerns about a downbeat manufacturing report from China, and a warning by the head of the International Monetary Fund that the global economy would be facing headwinds in the year that has just begun.

On Jan. 3, WTI February futures settled on the CME at $76.93/barrel, compared to $79.53/bbl on Dec. 27.

Brent futures for March delivery settled on the CME at $82.10/barrel on Jan. 3, from $84.33/bbl for February futures on Dec. 27.

Louisiana Light Sweet crude wholesale spot prices were hovering at $81.56/barrel on Dec. 30, from $81.97/bbl on Dec. 23, according to the Energy Information Administration. (There was no trading on Dec. 26 and Jan. 2 due to the year-end holidays).

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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