U.S. Base Oil Price Report


With tensions in the Middle East mounting given Israel’s ongoing fight against Hamas in Gaza and growing Iranian involvement in hostilities, concerns about the difficulties in moving products out of the region have grown. Shipping companies continued to reroute vessels around the Cape of Good Hope in lieu of passage through the Suez Canal to avoid Iran-backed Houthi militants’ attacks in the Red Sea. This situation has not only affected container trade, but base oil shipments as well – those of API Group III grades in particular – as transit times and freight rates have climbed. On the naphthenic side, San Joaquin Refining decreased prices on Jan. 8.

Reports also circulated of Asian base oil cargoes suffering delays due to a backlog of vessels waiting to cross the Panama Canal. According to a newsletter published by Skuld, a worldwide marine insurance provider, the Panama Canal Authority has significantly reduced the number of vessels transiting the Canal due to record-breaking low rain levels. From mid-January, the canal authority said in an advisory, it will have 24 transit slots per day (from the usual 34-36 slots) compared to the 18 it had planned in a prior announcement. The Authority has advised that vessels without bookings may face “indefinite delays.” Some charterers were opting for the lengthier voyage across the Strait of Magellan in South America to avoid delays.

At least one supplier that imports base oils from Asia noted that it would be able to fulfill immediate orders as it has storage tanks in the United States, but it was not clear how long its supplies would last before they needed to be replenished. Domestic production of Group II+ and Group III grades was not deemed sufficient to meet regional requirements, although those producers that have the ability to increase Group III output versus Group II production may do so given lackluster offtake of Group II grades.

Meanwhile, a Middle East producer was heard to have shut down its Group II and Group III base oils plant temporarily due to falling demand. While the base oil plant was heard to be running well, the company was taking the opportunity to make some equipment adjustments. The producer has not yet specified a restart date, but it appeared likely that it will resume production at the beginning of February. In the meantime, it is able to meet current requirements given sufficient stocks.

Expectations of climbing base oil prices due to the transportation woes contrasted with the recent posted price decrease initiatives that resulted in lower base oil postings since early December. A number of additional grades were also adjusted the first week of January.

On Jan. 1, Motiva lowered its Group II+ and Group III base oils by 30 cents per gallon, seemingly completing the previous round of decreases which had seen the producer reduce its Group II 100N grade by 30 cents/gal and its 220N and 600N grades by 50 cents/gal on Dec. 1.

Petro-Canada decreased its Group II+ 65 cut by 30 cents/gal and all of its Group III grades by 30 cents/gal on Jan. 1 as well. Previously, on Dec. 8, the producer had lowered its Group II 70, 100 and 200 grades by 30 cents/gal; its Group II 300/350 and 600/650 base oils by 50 cents/gal, and its Group II+ 100 grade by 15 cents/gal. The Group II+ 65 and Group III cuts had not been changed at that time.

Also on Jan. 1, SK Enmove lowered all of its Group II+ and Group III prices by 30 cents/gal. The producer had previously adjusted down its Group II+ 70N grade by 10 cents/gal and all of its Group III grades by 15 cents/gal on Dec. 1.

On the naphthenic base oils side, San Joaquin Refining communicated a price decrease this week, joining other suppliers who had lowered prices by 15 cents/gal and 20 cents/gal between Dec. 15 and Dec. 20. San Joaquin decreased prices on most naphthenic and aromatic oils by 20 cents/gal, effective Jan. 8. The price of the company’s transformer oil did not change. The company also noted that the price was based on shipping date, not order date.

San Joaquin completed a scheduled turnaround at its refinery in Bakersfield, California, in early December, but shut down the plant again briefly due to technical issues with equipment installed in the hydrotreater. The producer resumed operations during the last week of December and was running at top rates, hoping to be able to fulfill its backlog of orders this month and achieve balanced inventories in February.

Demand on the naphthenic base oils front has also been softer than normal for this time of the year and was not expected to improve significantly before mid-February or early March. Even so, the light grades were described as fairly tight, while supplies of the heavier cuts have lengthened on a seasonal slowdown from applications such as process oil, and the tire and rubber segment.

The price decreases did not come as a surprise as demand had weakened during the last few weeks of 2023. Refiners had also run base oil plants at fairly high rates given more advantageous margins compared to fuels, leading to ample inventories, but this situation may change if diesel prices strengthen and there is a large base oil overhang.

Base oil suppliers expected to see heightened demand starting to emerge in February as many blenders tried to use up their inventories at the end of the year and were likely to return to the market to replenish stocks ahead of the spring production season. That said, finished lubricant inventories were plentiful in December, and restocking activities may be starting later this year than they typically do, sources noted.

Demand for U.S. exports from Mexico remained at lower levels than those seen during most of 2023 as stricter import and documentation requirements imposed back in the fourth quarter of 2023 inhibited most sales of light grades used for fuel blending. However, market participants’ permits were being processed and additional requirements were expected to surface in February.

Group II suppliers were still looking for opportunities to export cargoes to India, but demand for imports has declined in the country as several cargoes were scheduled to arrive over the next few weeks, including some from the Middle East. Furthermore, vessel space was tight and freight rates have gone up.

Europe was still showing subdued activity following the year-end holidays, but there have been some discussions regarding possible transactions. A 10,000-metric ton cargo was quoted for shipment from Lake Charles, Louisiana, to Klaipeda, Lithuania, in the second half of January. Additionally, in terms of shipments to Africa, details emerged on an 18,500-ton lot having been lifted in Port Arthur, Texas, to Apapa, Nigeria, on Dec. 31.

Buying interest for Group I and Group II grades from Brazil remained strong given production outages of local naphthenic and paraffinic base oil plants. However, falling domestic prices in Brazil were making U.S. offers less competitive.

Aside from the sluggish demand fundamentals at the end of the year, lower crude oil and feedstock values had prompted the Dec./Jan. decreases on both the paraffinic and naphthenic sides of the business, and there was still a good amount of volatility in oil markets.

Crude oil futures plummeted on Monday following significant cuts by top exporter Saudi Arabia to its official selling prices (OSP), but gained almost 2% on Tuesday morning, reversing some of Monday’s losses, as geopolitical tensions in the Middle East and an ongoing supply outage in Libya boosted numbers.

On Tuesday, Jan. 9, West Texas Intermediate (WTI) February 2024 futures settled on the CME at $72.24/barrel, compared to $70.38/bbl on Jan. 2.

Brent futures for March 2024 delivery settled on the CME at $77.59/barrel on Jan. 9, from $75.89/bbl on Jan. 2.

Louisiana Light Sweet crude wholesale spot prices were hovering at $73.46/barrel on Jan. 8, from $74.54/bbl on Dec. 29, according to the Energy Information Administration (There was no trading on Jan. 1 due to the New Year’s holiday).

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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