U.S. Base Oil Price Report


Lackluster demand continued to exert pressure on base oil prices, as market uncertainties weighed on business and lubricant sales. Volatile crude oil and feedstock prices were also placing pressure on base stocks. Lubricant manufacturers hoped that base oil prices would be adjusted down allowing them to reduce lubricant prices and kick-start orders. At the same time, the climbing cost of certain raw materials, insurance, labor and logistics have triggered increases for a number of finished products.

Lubricant and other finished products suppliers also explained that while there had been general base oil posted price decreases in January and more recently, in early March, for some API Group III grades, the price drops had not been sufficient to offset the upward pressure from other costs such as energy, labor, transportation and insurance. These costs have been trending up in recent months. Additive prices were also hovering at elevated levels, although some suppliers have started to grant discounts between 2% to 5% into specific accounts.

Base oil producers acknowledged that demand ahead of the spring season was much more subdued than in years past and partly attributed this to ongoing inflation, market jitters because of bank collapses amid recession fears and other economic uncertainties, which made buyers adopt a more cautious purchasing stance.

Nevertheless, base stock suppliers remained optimistic that there would be a pickup in buying appetite at the end of March or early April, as blenders were likely to return to the market to replenish depleted inventories.

While supply of some base oil grades was balanced against requirements, some cuts remained exposed to downward pressure given plentiful availability. This was the case for the light and mid-viscosity Group I and Group II grades and most of the Group III cuts, and spot prices have succumbed to the pressure, plunging by several cents to a dime week on week. Most of the Group I cuts were expected to tighten, as a Group I refiner was heard to have taken its base oil plant off line for maintenance.

Group II base oil supplies had been expected to be strained on the back of an ongoing turnaround at the Excel Paralubes plant in Westlake, Louisiana, which started in February and was expected to be completed at the end of the month. The restart would allow more product to reach the market in coming weeks.

At the same time, a shutdown at another key Group II unit scheduled in the second quarter was anticipated to result in fewer available barrels as the producer was building inventories to cover contractual obligations during the shutdown. A third producer had contemplated starting a turnaround in March, but the shutdown has been postponed. Plentiful Group II supplies and softer crude oil and feedstock prices have resulted in temporary value allowances or adjustments in the realm of 35 cents per gallon to 65 cents/gal being granted to a number of buyers.

In the Group III segment, inventories were also said to be ample as regular imports continued to pour in and domestic production of Group III grades has increased. According to sources, at least two domestic producers have hiked up production rates of Group III cuts at their refineries because of better margins, despite the fact that their yield would be reduced, but this could not be confirmed with the producers directly as they do not offer comments about their refining operations.

While there had been talk about temporary voluntary allowances or adjustments into select Group III accounts, price pressure was said to have subsided as inventories were being worked down on budding buying interest, particularly for the Group III 4 centiStoke cut.

U.S. Group I and Group II producers were trying to pursue opportunities on the export front, but interest was muted because supply of most grades was also deemed adequate-to-long in other regions. Nevertheless, demand for the heavy grades from Mexico has started to show a resurgence and there appeared to be some opportunities to ship product to South America, Africa and Europe, depending on the grade.

One of the issues hampering transactions into more distant destinations was the price volatility of crude oil and feedstocks, which fed concerns that base oil prices might have fallen by the time a shipment reached its destination. Financial instability in many countries also tightened credit and this affected trading as well. Nonetheless, it was heard that a sizeable U.S. parcel of about 15,000 metric tons had been concluded into Mumbai, India, for end of March to early April lifting, and further discussions were ongoing. About 4,000 metric tons were also on the table for shipment from the U.S. Gulf to Puerto Cabello, Venezuela, in April.

On the naphthenic side, a refiner was reported to have experienced some production issues, which may tighten its supply levels. The pale oil segment was just emerging from a tighter period following San Joaquin Refining’s turnaround from mid-January to mid-February. Growing availability of the light grades and lower diesel values were placing downward pressure on pricing.

Demand was deemed less vibrant than expected for March, but suppliers have seen some signs that consumption levels were improving on the domestic side, as well as on the export front, with buying interest noted in Latin America and Europe.

In downstream segments, as mentioned above, a number of manufacturers communicated price increases for finished products in recent weeks.

Omni Specialty Packaging announced that the company will be increasing its brake fluid pricing by $1.25/gallon, effective April 15.  This is due to force majeures from suppliers of the key raw materials used to blend brake fluid, and a reduction of production from other suppliers. The brake fluid market is extremely tight and will likely remain this way for at least several months, sources noted.

Lubrication Engineers was reported to have implemented a general price increase of 5% on its greases on March 20, although some customer-specific specialty greases may have been adjusted by a different amount.

Upstream, crude oil futures edged up on Tuesday, after West Texas Intermediate fell below $70 per barrel in the previous session. Oil prices had their worst week of the year last week, falling more than 10% on fears of a banking sector collapse.

Trading sentiment was lifted on Tuesday as fears about more banks failing partly dissipated when UBS agreed to buy its rival, the embattled Credit Suisse, but analysts kept an eye out for the U.S. Federal Reserve’s announcement about interest rates on Wednesday.

On March 21, West Texas Intermediate (WTI) April futures settled on the CME at $69.33/barrel, compared to $71.33/bbl on March 14.

Brent futures for May delivery settled on the CME at $75.32/barrel on March 21, from $77.45/bbl for April futures on March 14.

Louisiana Light Sweet crude wholesale spot prices were hovering at $70.46/barrel on March 20, from $77.68/bbl on March 13, 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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