U.S. Base Oil Price Report


Shipping and logistical difficulties continued to draw the attention of market participants, although domestic supplies have been unaffected by geopolitical incidents impacting other parts of the world, particularly the Middle East. However, the potential shipment disruptions for cargoes moving out of that region and also from Asia have resulted in an increase in domestic API Group III production, along with a shift in trade patterns as United States suppliers have been looking at exporting more product to Europe and Latin America.

It was too early to ascertain whether the freezing temperatures in large parts of the U.S. would affect production or transportation.

Throughout the week, Yemen-based, Houthi militants continued to attack international vessels in the Red Sea, despite air strikes by allied forces on targets in Yemen. “The Iranian-backed militants launched a fresh round of attacks days after their military sites were hit by U.S. and British forces,” The New York Times reported on Jan. 16.

The attacks have forced some shipping companies to suspend operations in the Red Sea, and others to reroute their ships around the Cape of Good Hope in the southern tip of Africa to avoid passage through the Suez Canal. The alternative route adds several weeks to the voyage and leads to much higher transportation costs. “Group III logistics are tough these days. Asian imports became complicated two to three months ago when the Panama Canal began limiting daily activity due to low water levels. Now, the troubles with the Red Sea and Suez Canal are complicating the overall supply chain that much more,” a source noted. 

At least one Middle East base oil supplier was reportedly considering shipping product over the longer route. The extended voyage meant that these vessels would be tied up for longer periods and would be unavailable to complete other trips, causing a tightening of vessel space.

There were also reports of suppliers that source base oil cargoes in Asia having encountered delays in getting shipments to their destinations in the U.S. Gulf Coast and East Coast of South America due to a reduced number of vessels allowed to cross the Panama Canal. The same issues have affected shipments from the U.S. Gulf to West Coast South America. According to media reports, the Panama Canal Authority has reduced the number of vessels transiting the Canal from 34-36 per day to 22-24 vessels due to low rain levels and a lack of water in Gatun Lake, an artificial lake that supplies water to the canal. Some charterers were opting for the lengthier voyage round South America across the Strait of Magellan to avoid the delays. At least one shipping company, Maersk, was heard to be avoiding passage through the Panama Canal and using a “land bridge” that utilizes rail transportation across the 80 km of Panama to the other coast.

A South Korean base oil supplier was able to meet requirements as it has sizeable inventories in the U.S. but admitted that everyone’s supply could be impacted by unexpected delays and tightening availability between replenishment vessels.

Despite all of these uncertainties, base oil prices were fairly stable in the U.S., following posted price adjustments last December and additional ones on specific grades earlier this month. “We were thinking the Red Sea situation should have some effect on Group III supply (and in raising freight costs), but so far the market is not really responding,” a source commented. Spot prices were also largely unchanged but remained exposed to downward pressure as suppliers sought opportunities to export product and keep domestic inventories in check.

Given the recent difficulties encountered at the Panama Canal, U.S. sellers were focusing on offering cargoes to Latin America and Europe, since this last region was likely to be impacted by the Suez Canal disruptions and difficulties in receiving Middle Eastern and Asian base stocks. Even so, opportunities in Europe appeared slim given weak buying interest, at least for the time being.

There were also reports that the backlog of vessels waiting to cross the Panama Canal and related costs “were greatly reduced” over the last few days and that base oil shipments from the U.S. Gulf to West Coast South America may become more viable than has been the case in recent months.

There were also expectations that fresh Asian shipments would be attempted into Latin America and the U.S. This week, a 7,600-metric ton cargo was being discussed for prompt shipment from Daesan, South Korea, to the U.S. Gulf. A 12,600-ton lot was also mentioned for possible prompt shipment from Hamriyah, United Arab Emirates, and Ulsan, South Korea, to Cartagena, Colombia.

Buying interest from Mexico was starting to see a revival, but U.S. volumes moving there were anticipated to be lower at the beginning of the year than in 2023 because of stricter import requirements imposed on refined products by the Mexican government. However, as the backlog of import license applications gets cleared, more U.S. shipments are being secured.

Group I availability was expected to grow in the U.S. since a key producer has resumed production following a turnaround in the fourth quarter and was running at top rates. Group II supplies were also expected to lengthen on reduced export opportunities to destinations such as India and the Middle East due to transportation challenges and rising freight costs. Nevertheless, there were discussions of a 2,000-ton cargo for lifting in Paulsboro, New Jersey, to Ningbo, China, between mid-January and early February.

Brazilian buyers were still hoping to acquire U.S. Group I and Group II cargoes because of a Brazilian producer’s output issues following a turnaround last October but offers were not considered as attractive as they had been last year because of lower domestic values in Brazil.

On the naphthenic base oils side, San Joaquin Refining restarted its plant in Bakersfield, California, in early December, following a scheduled turnaround, and was heard to be running well. The producer was striving to fulfill a backlog of orders this month and achieve balanced inventories in February. A second producer was heard to have shut down its plant for maintenance this month, but further details were not confirmed.

A majority of pale oil producers communicated price decreases of 20 cents/gal – with some oils seeing decreases of 15 cents/gal – between Dec. 15 and Jan. 8 despite fairly balanced supply and demand factors. The decreases were mostly driven by tumbling crude oil and feedstock prices in the weeks preceding the initiatives, coupled with slowing base oil demand at the end of the year.  

Both naphthenic and paraffinic base oil demand was not anticipated to increase substantially before mid-February or early March ahead of the spring production cycle as lubricant inventories were still healthy and blenders preferred to delay purchases for as long as possible.

Ongoing geopolitical tensions in different parts of the world, together with mixed economic indicators pressured crude oil and feedstock prices as well. Crude futures were up on Tuesday morning because several oil tankers tried to avoid the southern Red Sea route, but prices slipped later in the day. “While the strikes have prompted Shell Plc. to suspend all shipments through the Red Sea, physical crude supplies remain unaffected,” Bloomberg reported. Freezing weather production disruptions in North Dakota also failed to boost numbers.

On Tuesday, Jan. 16, West Texas Intermediate (WTI) February 2024 futures settled on the CME at $72.40/barrel, compared to $72.24/bbl on Jan. 9.

Brent futures for March 2024 delivery settled on the CME at $78.29/barrel on Jan. 16, from $77.59/bbl on Jan. 9.

Louisiana Light Sweet crude wholesale spot prices were hovering at $75.54/barrel on Jan. 12, from $73.46/bbl on Jan. 8, according to the Energy Information Administration There was no trading on Jan. 15 due to the Martin Luther King Jr. holiday in the U.S.

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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