U.S. Base Oil Price Report


While base oil supply in the domestic market appeared adequate to meet demand, an ongoing plant turnaround, reduced base oil output at refineries as a result of increased distillates production and growing consumption might lead to tighter availability of certain grades.

Many base oil producers finished the year with fairly ample inventories, but a combination of factors may allow for a balanced-to-tight scenario to emerge in coming weeks. Demand for both base oils and finished lubricants has generally improved in the United States – which is typical for this time of the year – although it was not yet “quite as strong as at this time last year,” a source commented. January posted price decreases were said to have triggered heightened buying appetite, but consumers were still cautious as downward price pressure persisted. They preferred to secure smaller quantities to avoid holding high-priced inventories if values did soften later.

API Group II spot availability was expected to tighten due to an extended turnaround at a U.S. Gulf Group II plant, which started last month and was anticipated to last about two months. While the producer was heard to have built inventories to cover contract commitments during the outage, the spot market was likely to remain tight. This could also lead to increased buying interest for Group I and Group III grades in applications where substitution might be possible.

Group I availability could also be affected by refiners’ drive to maximize distillates production as diesel prices remained firm on strained supplies. Sources said that the ultra-low sulfur diesel market was still very strong, although prices had come off previous highs. The drive to produce more diesel could lead to reduced base oil output, a situation that also influenced refinery operations last November and December, resulting in low inventories of Group I grades. An increase in diesel production may prevent the building of Group I or Group II inventories, “but would not cause any base stock shortages,” a source noted.

In the realm of Group III base oils, supply and demand were deemed fairly balanced, depending on the cut. The 4 centiStoke grade continued to command the most attention given its burgeoning use in automotive applications, and supply of this grade was therefore more strained than that for the 6 cSt and 8 cSt grades. Most of the Group III base stocks used in North America are imported from Asia and the Middle East, and plants in both regions were running well, allowing for plentiful supplies to move to the Americas. However, a South Korean Group II and Group III plant was anticipated to undergo maintenance in June, which could restrict supplies beforehand if the producer starts building inventories.

Paraffinic base oil prices were stable this week, supported in part by increasing demand as lubricant blenders begin to pad inventories for the spring production season. Crude oil and feedstock prices showed an upswing this week as well, with steeper values likely to exert upward pressure on base oils were the trend to persist.

Buying interest from Mexico has started to pick up, with Group I base oils particularly attracting attention, indicating that buyers had low inventories and were unable to wait any longer for prices to edge down further. Sources said that prices have likely hit the bottom in Mexico. Demand from elsewhere in Latin America was expected to show an uptick as buying had been muted in the previous months and stocks were likely to be depleted too.

Numerous U.S. export cargoes used to move to India at the end of the year as suppliers sought to reduce surplus supplies at home, but demand for imports was more subdued as Indian producers were able to offer competitively-priced base oils manufactured from deeply discounted Russian oil. Base oil prices in Europe have started to stabilize and this could lead to some opportunities in the coming months, sources commented.

U.S. paraffinic base oil producers had lowered posted prices in January by 15 cents per gallon to 60 cents/gal, depending on the product and the supplier, with Motiva and SK Lubricants Americas implementing steeper decreases on their Group II+ grades in order to align values more closely with current market levels.

On the naphthenic base oils side, prices remained largely unchanged, following 20 cents/gal and 30 cents/gal decreases implemented in mid-January. Values were receiving some support from a balanced-to-tight supply and demand ratio, given that orders have started to pick up, and a turnaround at San Joaquin Refining’s Bakersfield, California, refinery has taken some product out of the supply system. The turnaround began on Jan. 21 and was expected to last approximately four weeks.

With more positive news coming out this week regarding falling inflation and a flourishing job market in the U.S., industrial activity was also expected to increase in the coming months, although consumer spending – the biggest engine of the U.S. economy – was beginning to flag, according to CNN Business.com. The softer sentiment may also impact the lubricant and finished products segments in the short term.

Major manufacturers have communicated price decreases on most lubricants of up to 8 percent, effective mid-January, but implemented increases on grease, while several independent blenders have decreased lubricant prices between 40 cents/gal and 55 cents/gal on the back of lower base oil values and lukewarm demand. Suppliers hoped that the decreases would encourage buyers to purchase more lubricants and finished products in coming weeks.

Additive prices, on the other hand, have not been adjusted down, despite blenders’ appeals and lower posted base oil prices. Additive supplies were still deemed tight, which was lending support to the current price indications.

Upstream, crude oil futures edged up for a second straight session on Tuesday, boosted by optimism about a potential recovery in Chinese crude demand and concerns over supply shortages following the shutdown of a major export terminal after a devastating earthquake in Turkey. U.S. crude stocks fell by 2.2 million barrels last week, the American Petroleum Institute data reflected on Tuesday, offsetting several weeks of growing inventories.

On Feb. 7, WTI March futures settled on the CME at $77.14/barrel, compared to $78.87/bbl on Jan. 31.

Brent futures for April delivery settled on the CME at $83.69/barrel on Feb. 7, from $84.49/bbl for March futures on Jan. 31.

Louisiana Light Sweet crude wholesale spot prices were hovering at $77.91/barrel on Feb. 6, from $81.37/bbl on Jan. 30, 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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