U.S. Base Oil Price Report


Despite market participants’ expectations that additional price revisions would follow the posted price decreases announced by Chevron and SK enmove last week, no other adjustments surfaced by close of business on Tuesday. Over the weekend, OPEC+ had communicated the organization’s decision to curb crude oil output, making oil futures surge by close to 6% on Monday. The steeper crude oil prices may have forced producers to reconsider base oil price adjustments and kept many players on the sidelines.

For the time being, it appears that some suppliers may continue to resort to temporary value allowances or adjustments to encourage domestic orders, as well as lower spot prices to attract export business.

The API Group I segment was described as balanced-to-tight, with limited spot availability and prices deemed steady-to-soft. A Group I refinery started a turnaround in early March, which was thought to have contributed to the tightening of supplies, but the unit was expected to have been restarted last week, although this could not be confirmed.

Within the Group II segment, there was talk about TVAs in the realm of 30 cents/gal to 85 cents/gal. It was slightly surprising to see suppliers granting TVAs in this segment, since Group II supply had been expected to tighten on the back of an extended turnaround at a key United States Gulf Coast facility. While this segment has not seen any supply issues, this may be changing as the turnaround has been extended.

Excel Paralubes, the company that started a turnaround and catalyst change back in early February, had been anticipated to restart its plant at the end of March, but there were reports that the shutdown has been extended for a couple of weeks due to technical issues. This may impact the company’s ability to meet its contractual obligations in coming weeks and may force it to secure product from other suppliers, sources speculated.

A Group II+/Group III rerefiner also completed a brief one-week shutdown in mid-March.

Chevron was also heard to have scheduled a turnaround at its Group II plant in Pascagoula, Mississippi, in the second quarter, and has been building inventories to cover requirements during the outage.

Despite the turnarounds, Group II supplies had been sufficient to meet demand amid lackluster domestic requirements and limited buying interest from other regions. Market participants also commented that once both plants resume production at full rates, following catalyst changes, a larger amount of Group II base oils would be coming into the market, placing additional pressure on pricing.

Participants also said that refiners were keeping an eye on diesel prices. Should values shoot up alongside higher crude oil prices, refiners might redirect feedstocks to produce distillates instead of base oils. This situation might affect the base oils supply/demand balance in coming weeks and prompt buyers to secure product to avoid potential shortages.

The Group III segment has also seen some lengthening, with supplies of the 6 centiStoke and 8 cSt showing greater exposure to downward price pressure as these cuts are not as sought-after as the 4 cSt grade. Increased domestic Group III production was also adding to the surplus availability. As a result, some suppliers appeared to be willing to grant TVAs of 20 cents/gal to 40 cents/gal, while a number of sellers abstained from adjusting prices as they predicted that this segment would tighten, with demand likely to pick up, and plant turnarounds in Asia and Europe limiting supplies over the next few months.

Chevron and SK enmove had communicated posted price decreases for their Group II and Group III base oils the previous week. The moves were thought to have been driven by softer crude oil values, sluggish demand and growing inventories of paraffinic base oils – conditions that are fairly atypical during the spring season. Blenders traditionally begin to acquire increased base oil volumes in February and March to raise production rates and help lubricant manufacturers prepare stocks for a vibrant summer driving season and an accompanying pickup in oil changes and motor oil demand. But this year, buyers have been holding off on purchases, hoping for posted price decreases to emerge. Economic uncertainties and ongoing inflation also weighed on market sentiment.

Chevron lowered its API Group II 100R by 30 cents per gallon, and its 220R and 600R grades by 40 cents/gal on March 28.

SK decreased the posted price of its Group III 4 cSt grade by 15 cents/gal 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 was not revised.

Suppliers have been pursuing export opportunities, with buying interest for U.S. base oils noted in Mexico, Brazil and other Latin American countries. Brazilian buyers appeared to be keen on securing Group I grades, bright stock in particular. Several U.S. cargoes finalized a few weeks ago were expected to reach their destination ports in Nigeria, Argentina and Brazil over the next few days. However, constraints such as high prices and steep freight rates hampered the conclusion of fresh transactions and allowed for Asian cargoes to compete for Latin American business.

In the naphthenic base oils camp, the downward pressure recently present on prices was mitigated by steeper crude oil and feedstock values over the last two weeks.

While supply and demand of most pale oils was described as fairly balanced, participants conceded that the lighter grades were currently exceeding requirements. Demand for pale oils from Latin America and Europe was taking some of the pressure off suppliers, who were concerned about a product overhang amid lackluster domestic demand.

Finished lubricant demand has also been less healthy than during the same period last year. This factor has placed downward pressure on pricing, with some manufacturers agreeing to discounts in order to protect market share. Some additive suppliers have also given in to the pressure, with discounts between 2% and 5% being granted. One bright spot appeared to be that demand for new passenger cars was still strong in the U.S., which was supporting healthy demand for factory-fill lubricants.

Upstream, crude oil futures surged by almost 6% on Monday after OPEC+ members announced a surprise cut in oil production of over one million barrels per day, or 1 percent of global production, beginning in May. This could lead to higher demand for U.S. oil in Europe and Asia, Reuters reported. Oil prices continued to climb on Tuesday as U.S. crude inventories also showed an unexpected drop, according to an American Petroleum Institute report.

The New York Times reported that OPEC+’s production cut was a way for Saudi Arabia to ensure that oil prices remained near $90 per barrel. But the higher oil prices will make it harder to rein in inflation and lower the cost of living, economists said.

On April 4, West Texas Intermediate (WTI) May futures settled on the CME at $80.71/barrel, compared to $73.20/bbl on March 28.

Brent futures for June delivery settled on the CME at $84.94/barrel on April 4, from $78.65/bbl for May futures on March 28.

Louisiana Light Sweet crude wholesale spot prices were hovering at $82.45/barrel on April 3, from $74.87/bbl on March 27, 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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