U.S. Base Oil Price Report


Chevron and SK enmove communicated posted price decreases this week, which will go into effect on March 28 and April 1, respectively. It was not surprising to see price adjustments as demand has been muted, and many attributed this to high base oil prices and market uncertainties. Suppliers had hoped that more encouraging signs of a pickup in demand would emerge by the end of month, but March is coming to an end without significant changes.

Chevron informed its customers that effective March 28, the company’s U.S. Gulf Coast posted prices would “decrease to reflect current market conditions.” Chevron’s API Group II 100R was lowered by 30 cents per gallon, and its 220R and 600R grades by 40 cents/gal.

SK will decrease the posted price of its Group III 4 cSt grade by 15 cents per gallon and its Group III 6 cSt and 8cSt cuts by 20 cents/gal, effective April 1. The price of the company’s Group II+ 70N will remain unchanged.

Spring has started without a marked increase in orders, even though blenders typically prepare lubricant inventories to meet heightened demand during the summer driving season. Some attribute the languid market conditions to macroeconomic factors, while others speculated that base oil buyers were waiting for base oil price decreases before securing additional barrels. Many consumers were nervous about acquiring high-priced inventories when prices might tumble later.

While most base oil posted prices remained unchanged – with the exception of Chevron’s and SK’s postings – there has been increased talk about paraffinic suppliers granting temporary value allowances or adjustments between 30 cents per gallon to 85 cents/gal, depending on the cut, into a number of accounts to encourage purchases. This was perceived as a strategy to avoid adjusting posted prices for the time being. Furthermore, producers pointed to rising crude oil and feedstock prices this week as a factor supporting base oil values.

There had been expectations that supply would be tight for most grades towards the end of the first quarter given an expected uptick in demand and a couple of plant turnarounds. Refiners had also been favoring fuel output in detriment to base oil production given high diesel margins, and this had tightened some segments, particularly within the API Group I category.

However, given muted domestic demand, suppliers were heard to be in possession of surplus material, which they have tried to place through export transactions. This resulted in lower spot prices, with some grades, including the light and mid-viscosity Group I and Group II cuts, seeing decreases of around 5 cents per gallon from a week ago.

The two-month turnaround at the Excel Paralubes Group II plant in Lake Charles, Louisiana, had been expected to be completed at the end of March. The restart has been delayed by about a week due to some technical issues, according to sources. The Chevron Group II plant in Pascagoula, Mississippi, has been scheduled for a turnaround in the second quarter and the producer was heard to be building inventories to cover contractual obligations during the outage.

Market participants pointed out that once both plants resume production at full rates, following catalyst changes, a large amount of Group II base oils will become available, placing additional pressure on pricing.

Spot prices for Group III grades were also revised down by around 5-8 cent/gal, with less pressure seen on the 4 cSt grade as it was still experiencing healthy demand. A couple of suppliers have granted TVAs in the realm of 20 cents/gal to 40 cents/gal, but other sellers refrained from adjusting prices on expectations that this segment would tighten as demand is likely to pick up and there will be plant turnarounds in Asia and Europe over the next few months.

On the export front, sellers have noticed revived buying interest from Mexico, although buyers were also hesitant to pay current prices. There has also been buying interest from Brazil, where domestic production has experienced some issues, and other South American countries. Despite revived appetite for U.S. base oils, volatile crude oil and feedstock prices, together with financial constraints, were hindering the conclusion of some export transactions. Nevertheless, a number of cargoes managed to be finalized, including a 4,500-metric-ton cargo for prompt shipment from the U.S. Gulf Coast to Brazil this week. There has also been talk about cargoes moving from Northeast Asia to the Americas, with a 1,000-ton parcel discussed for lifting in Pyongtaek, South Korea, to Guayaquil, Ecuador, in early April. About 11,000 tons were also earmarked for shipment from Port Klang, Malaysia, and Ulsan, South Korea, to the Caribbean in late March/early April.

On the naphthenic front, softer crude oil prices than earlier in the year and lower-than-expected demand continued to place pressure on prices. Suppliers have adjusted down some of the pricing for the light grades, hoping to trigger buying interest. Supply and demand were deemed somewhat balanced, but growing availability of the light grades and lower diesel values exerted pressure and prompted some refiners to curb production rates. Demand for pale oils from Latin America and Europe continued to draw on U.S. supplies.

Upstream, crude oil futures surged early in the week on easing concerns about a potential banking crisis, a softer U.S. dollar, an unexpected drop in U.S. crude inventories and persistent global supply issues.

An international arbitration court ruled in favor of Iraq, preventing Turkey to access oil from Kurdistan via a pipeline. This means that there will be 400,000 to 450,000 barrels per day shut in and not entering the global market, according to media reports.

On March 28, West Texas Intermediate (WTI) May futures settled on the CME at $73.20/barrel, compared to $69.33/bbl for April futures on March 21.

Brent futures for May delivery settled on the CME at $78.65/barrel on March 28, from $75.32/bbl on March 21.

Louisiana Light Sweet crude wholesale spot prices were hovering at $74.87/barrel on March 27, from $70.46/bbl on March 20, 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.

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