U.S. Base Oil Price Report


The base oils market continued to move at a moderate pace in the midst of a heat wave that affected large swaths of the United States. While crude oil and feedstock prices have climbed, base oil prices remained under pressure given lackluster demand and adequate-to-ample supplies, with expectations of additional volumes coming to the market in the coming weeks exacerbating the downward squeeze.

The imminent completion of a turnaround at Chevron’s API Group II plant meant that more base oils would be entering the supply system once the producer has rebuilt inventories. This would coincide with a seasonal demand slowdown, although demand this spring and summer has already been on the sluggish side, sources noted.

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 week. The producer had built inventories to cover contractual obligations during the outage, limiting its spot offers.

Calumet will be conducting a routine turnaround at its Group I and Group II plant in Shreveport, Louisiana, in the second half of July, but the maintenance will only affect the unit that produces the light viscosity grades, the producer said. Calumet has also been building inventories and does not expect any impact to the market.

A third Group II producer, which had suffered unexpected production issues in June, has also been working on rebuilding inventories.

While posted prices for paraffinic base oils were stable, following a round of decreases in June and a further adjustment by SK Enmove in early July, there was increased pressure on spot prices, both for domestic and export transactions. Prices for the light viscosity grades in both the Group I and Group II segments, as well as for the Group III 4 centiStoke cut, have slipped by a few cents to a nickel per gallon week on week, and remained exposed to downward pressure given plentiful availability. Some contract customers also continued to enjoy temporary voluntary allowances or adjustments, which had been granted earlier in the year.

During the first and second quarters, U.S. producers had been able to keep inventories fairly balanced against demand because of healthy buying appetite in other regions, but many of these destinations were unable to receive more product and prices have fallen, closing the arbitrage window.

There continued to be keen buying interest from Brazil, as production rates there have not been consistent and at least two local Group I refineries were preparing for turnarounds at the end of the third quarter or early fourth quarter, although price ideas have slipped given softer market fundamentals. Demand from Argentina had also been robust, but whether these demand trends in Latin America would persist in the long term was uncertain, as some consumers had rushed to secure product given high inflation rates and a need to beat a further weakening of the local currency against the dollar. Mexican demand was deemed steady, but not particularly strong, and buyers had adjusted bids down when they saw U.S. posted prices slip.

Up until June, U.S. suppliers had also concluded several transactions into India and the country seemed to be reaching a point of saturation, as sellers in Asia and the Middle East had also targeted this market, while demand has slowed down due to the monsoon rains that caused logistical and transportation issues.

Another factor that may be impacting the supply scenario in the U.S. was the high run rates at most refineries, given that refiners strove to meet burgeoning gasoline demand and preferred to boost base oils output as margins were holding compared to diesel. Diesel demand was also expected to weaken in the second half of the year compared to the average consumption in previous years, according to forecasts by the U.S. Energy Information Administration (EIA).

Both base oil producers and consumers were keeping an eye on crude oil and feedstock prices because values have strengthened on prospects of reduced global supply in the coming months.

Crude oil futures surged by more than 1% on Tuesday after China signaled its intention of implementing economic incentives to promote growth. China is currently the world’s biggest oil importer. Forecasts pointing to a decline in U.S. output and expectations that the U.S. Federal Reserve would stop its interest rate hikes also boosted oil values.

On July 18, West Texas Intermediate (WTI) August futures settled on the CME at $75.75/barrel, compared to $74.83/bbl on July 11.

Brent futures for September delivery settled on the CME at $79.63/barrel on July 18, from $79.40/bbl on July 11.

Louisiana Light Sweet crude wholesale spot prices were hovering at $76.72/barrel on July 17, from $75.75/bbl on July 10, according to the Energy Information Administration.

Most blenders were keeping low inventories and appeared to have switched to purchases of smaller cargoes to run day-to-day operations and avoid pricing risks. Finished lubricant demand remained sluggish in a few segments, with suppliers mentioning consumption from the automotive segment as being disappointing. The slump in base oil and lubricant demand from the automotive segment was puzzling given the oil change season and steady car sales.

Some manufacturers have offered price incentives to promote sales or protect market share. Additive suppliers were also heard to be granting discounts of about 3% to 4% on additives that have a high base oil content, but not all customers were seeing the same benefits.

In the naphthenic camp, base oil consumption remained healthy, and supplies were deemed balanced against demand. This, along with climbing crude oil and feedstock prices, offered support to the current price structure. Higher diesel values have also removed some of the pressure on contract prices which are linked to a diesel index.

Export transactions to Europe and Asia allowed pale oil suppliers to reduce domestic inventories and preserve current pricing, although there is some concern that demand in Europe may slow down in August due to the summer holidays, the current heat wave affecting many countries, and a reduction in manufacturing rates.

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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