U.S. Base Oil Price Report


Market participants seemed slightly perplexed at the fact that base oil demand has not been as strong as expected ahead of the spring lubricant production season. There was speculation that consumers were in possession of adequate inventories, which they were trying to use up before acquiring fresh cargoes, with economic uncertainties and inflation weighing on requirements. Lubricant buyers appeared to be waiting for finished product prices to come down, following base oil price adjustments in January and earlier this month, but few of these downward price movements have materialized.

Softer crude oil and feedstock values over the last couple of weeks were anticipated to place downward pressure on base stock prices. Weaker diesel premiums failed to offer the same incentives for refiners to stream more feedstocks into distillates as in previous months, and base oil production was therefore not affected. Refiners might start to evaluate base oil output rates, however, if surplus levels reach a critical point.

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A few corners of the market have continued to lengthen. The light and mid-viscosity API Group I and Group II grades and most of the Group III cuts were said to be outpacing consumption and prices were exposed to downward pressure. Buyers felt fairly confident that there was enough product in the market to meet requirements and were therefore postponing orders for as long as possible. Many blenders also preferred to secure enough base oils to run day-to-day operations and maintain certain degree of flexibility instead of acquiring larger volumes. At the same time, they were exposed to the risk of not being able to find enough product if conditions changed all of a sudden due to unexpected events such as weather-related disruptions.

In the case of the Group I and Group II grades, the prevailing conditions led to lower spot prices, as suppliers tried to attract new business and export transactions to reduce the domestic product overhang. There were reports of decreases in the vicinity of 10 cents per gallon for the light grades in the Group I and for the Group II light and mid-vis cuts. Cargoes were heard to have been offered to buyers in the Middle East, India, Africa and South America. Export movements have been hampered by high prices in the U.S. compared to other regions and plentiful base stock availability at destination, issues with financial guarantees of receivers, and elevated freight costs.

Buying appetite showed signs of awakening in Mexico, with Group I and Group II supplies said to have been offered at competitive prices and brokers on the lookout for cargoes. Elsewhere in Latin America, it was reported that Brazilian buyers were inquiring about Group II grades, while a Greek cargo was heard to have been concluded to La Plata, Argentina.

U.S. Group I supply and demand conditions were generally more balanced than for the other groups of base stocks, and availability may become more strained as a producer was expected to complete a turnaround in the second quarter.

Despite earlier expectations that Group II base oil supplies would be more limited due to the ongoing turnaround at the Excel Paralubes plant in Westlake, Louisiana, Group II light and mid-viscosity grades were said to be ample. An upcoming shutdown at another key unit in the second quarter was expected to draw some barrels away from the supply system as the producer was heard to be building inventories to meet contractual obligations during the shutdown. A third producer had contemplated starting a turnaround in March, but the shutdown has been postponed.

In the Group III segment, SK Enmove’s posted price decrease on its Group III grades at the beginning of the month seemed to be evidence of the downward pressure on these grades. A couple of Group III suppliers had already started to grant temporary voluntary allowances or adjustments (TVAs) before the SK decrease was announced, and spot prices had edged down. Consumers were also utilizing other grades whenever possible to avoid paying a premium for Group III base oils. Aside from large shipments from Asia and the Middle East, sources commented that domestic production of Group III had increased, contributing to the buildup of product in the U.S., and suppliers seemed to be running out of storage.

On the naphthenic side, supply and demand were said to be generally balanced, and although consumption in the U.S. has been slightly lackluster, brisk buying interest from Latin America, Europe and Asia was helping maintain inventories at manageable levels. Demand from the transformer segment remained steady, while interest from the industrial sector was starting to pick up, according to sources.

A naphthenic refiner was reported to have experienced some production hiccups, which may lead to snug supplies. The pale oil segment also saw some tightening during and after San Joaquin Refining’s turnaround from mid-January to mid-February.

In the lubricants segment, activity remained more downbeat than expected for this time of the year. A number of blenders have offered lubricant price decreases as an incentive to move product, but others kept prices unchanged, hoping that the approach of the driving season in the U.S. would kickstart demand. Some manufacturers also noted that production costs, including raw materials, labor and energy, have increased, offsetting recent base oil price reductions.

Upstream, crude oil futures fell by more than 4 percent on Tuesday, deepening the previous day’s losses, as inflation worries following a new report in the U.S. and the collapse of Silicon Valley Bank fueled concerns of a fresh financial crisis and a potential drop in crude oil demand.

On March 14, West Texas Intermediate (WTI) April futures settled on the CME at $71.33/barrel, compared to $77.58/bbl on March 7.

Brent futures for May delivery settled on the CME at $77.45/barrel on March 14, from $83.29/bbl for April futures on March 7.

Louisiana Light Sweet crude wholesale spot prices were hovering at $77.68/barrel on March 13, from $83.19/bbl on March 6, 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.

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