U.S. Base Oil Price Report


The paraffinic posted price increases communicated by a vast majority of base oil producers and rerefiners over the last two weeks have now been implemented. The mark-ups were triggered by skyrocketing crude oil and feedstock prices, coupled with a tighter supply and demand balance. It was still too early to ascertain whether the steeper base oil prices would have an impact on demand. On the naphthenic base oils side, producers also raised prices, driven by similar market fundamentals.

The initiatives lifted most API Group I prices by 20 cents per gallon, with the exception of bright stock, which producers left unchanged. Group II prices were generally raised by 15 cents/gal, 25 cents/gal, 30 cents/gal; and Group II+/Group III prices by 15 cents/gal, 20 cents/gal and 30 cents/gal, with all the increases going into effect between Sept. 15 and Sept. 25.

While base oil demand has lacked vigor for most of the year, an uptick in requirements ahead of the increases as buyers rushed to beat potential mark-ups, together with export transactions and reduced base oil output to allow for more distillates production, contributed to a tightening of supplies, particularly of Group I and Group II base oils. However, it remained to be seen whether these conditions could be sustained.

A release of inventories held in preparation for potential hurricane-related supply disruptions as the hurricane season draws to an end could lead to a flood of product coming into the market in coming weeks, although many participants did not appear to have significant stocks to sell. Most producers have either placed cargoes into the export market or reduced base oil output to produce more fuels such as diesel given attractive margins and healthy demand.

Within the Group I segment, supplies appeared adequate to cover the current call for product, despite an ongoing turnaround at HollyFrontier’s Group I plant in Tulsa, Oklahoma. The unit was taken down for a 45-day maintenance program earlier this month, and the producer had limited its spot offers in the weeks leading up to the turnaround to build inventories and maintain supply during the outage.

Brisk export business also helped U.S. suppliers achieve more balanced positions and strengthened spot values for Group I and Group II base oils. Brazil has been taking many U.S. cargoes because of ongoing and upcoming turnarounds and reduced local supplies. While cargoes from the U.S. might not be as competitively-priced as some products from Asia, the shorter lead times encouraged South American buyers to seek more U.S. shipments as they were concerned about potential shortages in the coming weeks.

Mexico has seen a resurgence in buying interest for U.S. material, particularly for the lighter grades as they can be used for diesel blending, causing a tightening of these cuts. Some logistical issues at the border, together with suppliers’ efforts to stand by their offer levels, could place a damper on business in the short term.

In other export business, there was mention of a 2,000-metric ton cargo being considered for shipment from the U.S. Gulf to Europe at the end of September or early October. Another 5,000 tons to 7,000 tons were expected to be shipped from Port Arthur, Texas, to El Dekheila, Egypt, or Gebze, Turkey, in October.

Group III cuts, which the U.S. mostly imports from Asia and the Middle East, were said to be lengthening against demand, and spot prices have come under pressure, although the discounts were only a few pennies per gallon. Supplies in Asia have become more strained because of plant turnarounds, increased demand and reduced operating rates at some plants, while importers moving product from the Middle East to the U.S. have also adjusted shipments to current consumption levels. Nevertheless, sluggish U.S. demand for Group III base oils, coupled with increased domestic production, have tilted the scale towards oversupply conditions.

On the naphthenic base oils front, producers also implemented 25 cents/gal and 30 cents/gal increases, driven by similar fundamentals to those observed in the paraffinic segment. Steep crude oil and feedstock prices and higher diesel values, along with balanced-to-tight supply and demand conditions – with the lighter pale oils and transformer oils in high demand – provided support to the initiatives. Strong export activity to South and Central America and Asia also helped drive prices up.

San Joaquin Refining, Calumet, Ergon and Process Oils – the exclusive marketer and seller of Cross Oil’s naphthenic oils – raised their naphthenic base oil prices by 25 cents/gal and 30 cents/gal, depending on the location, the producer, and the base stock, between Sept. 15 and Sept. 25.

Downstream, there were reports that finished lubricant manufacturers planned to raise prices in October to reflect the base oil price increases, but many appeared hesitant as demand has been lackluster and suppliers preferred not to risk losing market share. Many blenders need to maintain throughput volumes up to be able to keep unit costs down, sources explained, and this would not be the case if they start losing accounts.

Reports circulated that blenders were requesting temporary voluntary allowances from base oil suppliers because they were concerned about the difficulties in transferring the base stock increases down the supply chain.

Nevertheless, there were a number of lubricant and finished products manufacturers –

including Smitty’s Supply, US Global Petroleum, CAM2 International, Pinnacle Oil, and Pennstar – who communicated increases of up to 12-18% for lubricants and greases, and up to 9% for brake fluids, to be implemented in October. Most manufacturers cited not only the base oil price hikes, but the higher cost of additives, packaging, and freight as driving the increases.

The ongoing United Autoworkers’ union strike on the three largest car manufacturers –Ford, General Motors and Stellantis – was impacting operations at several auto plants for a second week and some industry participants were concerned that this might affect demand for factory-fill lubricants and other automotive fluids. However, some participants were of the opinion that the strike would be less impactful than expected. They explained that the bigger issue might be that some repair parts may become short because of the production disruptions, and this might lead to fewer drivers getting their cars repaired, which is when they typically also have their engine oil changed, leading to scarce oil changes and reduced demand for lubricants.

Upstream, there was still a fair amount of attention focused on developments in the crude oil and feedstocks segment as trading was choppy this week. Crude oil futures fell in early trading on Tuesday on expectations of limited economic growth and softer oil demand but bounced back later in the day on growing concerns about tightening supply. Crude oil inventories in Cushing fell by another 828,000 barrels, after falling 2.6 million barrels last week, leaving less than 22 million barrels in Cushing, OilPrice.com reported.

As far as the recent tightening of global fuels supply was concerned, Russia relaxed its export ban on low-quality diesel and marine fuel, which might help ease the current deficiency.

On Sept. 26, West Texas Intermediate November futures settled on the CME at $90.39/barrel, compared to $91.20/bbl for October futures on Sept. 19.

Brent futures for November delivery settled on the CME at $93.96/barrel on Sept. 26, from $94.34/bbl on Sept. 19.

Louisiana Light Sweet crude wholesale spot prices were hovering at $90.61/barrel on Sept. 25, from $93.57/bbl on Sept. 18, 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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