U.S. Base Oil Price Report


Most posted price increases announced in recent weeks were implemented, with participants waiting to see whether the markups would have any effect on demand. The announcements did have an immediate reaction in that a number of buyers rushed to place orders ahead of the increase implementation. This was particularly noticeable because requirements had been fairly lackluster in the weeks leading up to the increases. There were also reports of a delay in the implementation of some of the markups, depending on the supplier, volumes or contract terms.

Paraffinic producers and rerefiners communicated increases for their API Group I, Group II and Group II+ postings of 20, 25 and 30 cents per gallon, with effective dates dotted between Aug. 4 and Aug. 16.

The price hikes were said to have been driven by steep crude oil and feedstock values, and also partially by a tighter supply and demand balance in some segments of the market. The tighter conditions and steeper posted prices also offered support to spot prices of the light viscosity grades, which went up by a few pennies.

Even despite a fairly lusterless spring/summer season, some base oil segments have tightened due to a recent uptick in domestic sales, coupled with export transactions and plant turnarounds, which have taken many barrels out of the supply system. The Group I and Group II segments showed snug conditions, while base oils in the Group III category were mostly balanced.

Chevron and Calumet recently completed turnarounds at their respective base oil units, and HollyFrontier was preparing for a 45-day turnaround at its Tulsa, Oklahoma, Group I plant in late September. The producer was therefore not offering spot volumes, and has also been utilizing more of its base stocks for the company’s own lubricant production, according to sources.

A turnaround was being completed at a base oils plant in Brazil, and a second one was expected to start in the fourth quarter. Given uncertainties surrounding these shutdowns and their duration, Brazilian buyers have secured cargoes from the U.S. to cover potential supply shortages.

Buying interest from the West Coast of South America has emerged as well, and there continued to be discussions with buyers in Mexico involving lighter grades in particular, with prices moving up as they have strengthened in the U.S. While South American buyers had eagerly explored the possibility of importing Asian cargoes in the third quarter of last year, this year, it seemed less likely that numbers would work, plus more complicated logistics also discouraged some negotiations. Several export transactions of U.S Group II cargoes had been completed to India in the previous months, helping establish more balanced supply fundamentals in the U.S. However, little fresh business was reported into India this month.

Firm diesel prices against crude oil values also encouraged refiners to stream more feedstocks into distillates production versus base oils output, particularly as base stock uptake had been disappointing.

Some participants worried that a number of consumers and suppliers have not been keeping high inventories during the hurricane season. August and September are typically the months when the likelihood of a severe storm system is highest along the United States Gulf Coast, where several base oil plants are located.

Indeed, Tropical Storm Harold was expected to be heading towards Texas on Monday. By Tuesday, the storm was downgraded to a tropical depression, but it still brough heavy rain, flooding, and strong winds, leaving many customers without power, CNN.com reported. Production at Citgo Petroleum’s Corpus Christi, Texas, refinery was reduced on Tuesday following a power outage caused by the storm, according to local media outlets. The refinery does not house a base oils plant. There was no information about other refineries in the Corpus Christi area at the time of writing.

“The system headed to Texas is the latest sign the Atlantic hurricane season is ramping up. Three tropical systems formed in 24 hours Saturday into Sunday, and the Texas storm marks the fourth,” CNN.com noted.

On the naphthenic base oils front, prices remained largely stable, supported by firm crude oil and diesel prices and a balanced-to-tight supply and demand ratio.

Requirements for most pale oils was generally steady. “Naphthenic demand remains solid across all grades,” a source emphasized. The lighter grades continued to see robust consumption from the transformer oil sector, and demand for export cargoes from Europe and Latin America was still deemed healthy.

Naphthenic base oil producers continued to monitor crude oil prices to decide whether any price adjustments were necessary to improve margins and support base oil production at the refinery level. Spot prices have already ticked up slightly, sources noted.

In downstream lubricant segments, discussions continued to center on whether manufacturers would grant discounts for finished products to protect or gain market share, or whether the fresh base oil price increases would prompt suppliers to adjust prices up. A slowdown in demand for lubricants as the summer draws to an end was undermining some of the upward pressure, but there was talk about lubricant increases being implemented in September or October. A similar situation applied to additives, with participants expecting prices to reflect the base oil price increases in coming weeks, but additive consumption could also decline as lubricant production may be curtailed on lower seasonal demand.

Upstream, crude oil prices fell early in the week on discouraging news about China’s economic situation and expectations that the country’s demand for crude would decline as it imported substantial volumes earlier in the year and these barrels were still in storage. Futures moved up slightly on Tuesday as Tropical Storm Harold moved over Southern Texas and fueled concerns about possible oil supply disruptions.

On Aug. 22, West Texas Intermediate (WTI) September futures settled on the CME at $80.35/barrel, compared to $80.99/bbl on Aug. 15.

Brent futures for October delivery settled on the CME at $84.03/barrel on Aug. 22, from $84.89/bbl on Aug. 15.

Louisiana Light Sweet crude wholesale spot prices were hovering at $83.71/barrel on Aug. 21, from $85.05/bbl on Aug. 14, 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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