U.S. Base Oil Price Report


The fairly muted pace seen in base oil markets over the last few weeks appeared to be heightened by summer holidays and the absence of many players during the month of July. With the exception of SK Enmove’s posted price decrease on July 1, postings remained stable and fundamentals experienced little change.

Last week, SK decreased the posted price of its Group II+ 70N base oil by 5 cents per gallon and its API Group III 4 centiStoke, 6 cSt and 8 cSt grades by 15 cents/gal as of July 1.

This was SK’s second decrease in two months, with a similar initiative implemented in June along with other suppliers. The early June downward price adjustments had been partly driven by hopes that the lower prices would promote orders. While some suppliers did see an uptick in volumes, others conceded that the initiative had not triggered a significant market reaction and therefore did not expect potential further decreases to elicit a different outcome.

Base oil prices had not only been exposed to downward pressure because of sluggish demand, but also because of softer crude oil and feedstock values compared to the first quarter. However, crude futures have regained some of the lost territory as Saudi Arabia’s decision to continue its production cuts into August and Russia’s plans of implementing fresh curbs on exports sent futures higher.

Crude oil futures climbed on Tuesday as Russian oil production fell below February averages and on expectations of a supply deficit in the second half of the year if Saudi Arabia extends its production cuts, according to OilPrice.com. The Chinese government’s moves to implement stimulus packages signaled the possibility of increased oil demand from the world’s second largest crude importer.

On July 11, West Texas Intermediate August futures settled on the CME at $74.83/barrel, compared to $69.79/bbl on July 3. There was no trading on July 4 due to the Independence Day holiday.

Brent futures for September delivery settled on the CME at $79.40/barrel on July 11, from $74.65/bbl on July 3.

Louisiana Light Sweet crude wholesale spot prices were hovering at $75.75/barrel on July 10, from $73.26/bbl on June 30, according to the Energy Information Administration. July 3 prices were not available by the publishing deadline.

Refining rates remained high in the United States due to strong gasoline demand during the summer driving season, which was magnified by the fact that many drivers have taken to the road this year after three years of pandemic-restricted travel. One of the segments where the increase in driving was noted was in the rerefining sector, as used oil collection rates jumped in May, likely reflecting an increase in oil change rates and prompting rerefiners to increase run rates. However, despite an apparent uptick in driving, base oil and lubricants demand was less vigorous than in years past, market participants commented, as base oil buyers and finished lubricant manufacturers drew down existing inventories and limited fresh orders.

Another unusual element impacting supply and demand this summer has been the fact that both base oil consumers and suppliers seemed to be keeping fewer extra barrels on hand to cover requirements in case of weather-related supply disruptions. While early weather forecasts had characterized the current hurricane season as mild, a recent heat wave in many parts of the U.S. has led some meteorologists to increase their warnings about this year’s hurricanes. Last week, The New York Times reported that forecasters at Colorado State University now expected an above-average Atlantic hurricane season. Hurricanes in the Atlantic are often suppressed during El Niño years, but that may not apply this year because of the unusually warm ocean waters, which can fuel storms, experts explained. The updated weather forecasts seemed to have had an effect on orders as more participants came back into the market to secure additional stocks.

Aside from high refining rates, lower distillate margins and surplus vacuum gasoil availability were encouraging refiners to stream more feedstocks into base oils production. Distillate fuel oil consumption has also fallen as it is being displaced by biofuels in many parts of the country, particularly on the West Coast, the U.S. Energy Information Administration (EIA) reported. Last year, U.S. West Coast distillate consumption, as measured by product supplied, was at its lowest since 2002 and was on track to fall further this year. The growing use of biofuels instead of petroleum diesel is the primary cause for the decline. Renewable diesel has a growing share of the region’s diesel fuel market because clean-fuel programs have provided incentives for consuming it.

While most base oil plants were heard to be running well, the high output rates may be partly mitigated by ongoing and upcoming plant turnarounds, together with efforts by a couple of suppliers to rebuild inventories following maintenance at one plant and unplanned outages at another.

There were reports that Chevron’s Group II unit in Pascagoula, Mississippi, had started a 21-day turnaround in late June that was expected to be completed this month. The producer has built inventories to cover contractual obligations during the outage, but may not have much spot availability, according to sources.

Calumet was preparing for a routine turnaround at its Group I and Group II plant in Shreveport, Louisiana, in the second half of July. The producer has also been building inventories to maintain supply during the outage.

Base oils in most categories were deemed balanced-to-long, with spot prices for the Group II and Group III cuts exposed to additional downward pressure due to more abundant supplies. Spot prices have slipped by a few cents per gallon from last week, but suppliers continued to work on export opportunities, which allowed them to keep domestic inventories in check.

There has been healthy buying appetite from Brazil and other countries in South America due to production outages at local plants, although U.S. cargoes were competing with Asian offers. Mexican demand has picked up, but only for volumes offered at reduced prices levels, which not all suppliers were willing to match. Buyers perceived the U.S. market to be long and expected additional supplies to be offered into Mexico at attractive levels.

In the Group III segment, the 4 centiStoke grade continued to enjoy steady attention, but the 6 cSt and 8 cSt cuts have lengthened. Two key Group III base oil plants in Asia and Europe will be resuming production this month, following turnarounds, and this should allow for more base stocks to come into the market in the next few weeks. Aside from healthy volumes moving to the U.S. from South Korea and the Middle East, it was heard that there have been spot offers of product from a gas-to-liquids unit and that an Asian producer that has not traditionally exported to the U.S. was exploring the possibility of moving product there, although it would not have the needed approvals.

On the naphthenic front, prices remained steady on fairly healthy demand from most sectors, although the lighter grades have experienced some lengthening and the heavy grades have seen stronger activity during the summer but may be slowing down in coming months due to seasonal patterns. Keen buying interest from Europe and Asia was supporting current pricing as well.

Finished lubricant demand remained below expectations for this time of the year, and some manufacturers have offered price incentives to promote sales. Additive suppliers were also heard to be granting discounts on additives that contain a large proportion of base oils in their formulas as they pass along the base oil decreases implemented in June.

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/

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