U.S. Base Oil Price Report


While recession fears seemed to have subsided in the United States, economic uncertainties and ongoing geopolitical conflicts appeared to be still impacting the global base oils and lubricants markets, with demand showing only moderate improvement since December. Escalating hostilities in the Middle East and the Houthi attacks on vessels in the Red Sea have not directly impacted domestic base oils business, but they have suffused buyers’ concerns about potential product shortages and climbing freight rates.

Meanwhile, the delay of vessels waiting to cross the Panama Canal, which was affecting some cargoes moving from Asia to the U.S. Gulf and East Coast South America, has improved. The number of vessels has been limited due to low water levels, but more ships were being allowed to cross per day. To make matters worse, the Canal was expected to receive additional vessel traffic as ocean carriers trying to avoid the Red Sea due to the ongoing Houthi attack risks were looking for alternate routes. Some shipping companies have also found substitute transportation options for getting product from the West to the East Coasts of North, Central and South America, and vice versa. For example, shipping giant Maersk was utilizing rail transport in Panama to move product from one coast to the other.

For the time being, there have not been any supply disruptions of most base oil grades, mainly because base oil plants have been running at top rates, and some domestic API Group III producers have even increased Group III output to make up for potential supply issues with Asian products. The U.S. still relies heavily on imported Group III base stocks.

A South Korean supplier has been shipping base oils out of its storage facilities in the U.S. and has therefore not been critically impacted by shipping disruptions, but it was concerned about fresh replenishment shipments.

A second Group III supplier, which imports Middle Eastern product to the U.S., was heard to have rerouted its shipments around the Cape of Good Hope in South Africa, although this could not be confirmed. The longer route would add about two to three weeks to the voyage and incur higher fuel and insurance costs, according to sources.

Due to the difficulties in using the Suez Canal to reach Europe, Asia to Europe chemical tanker freight rates have increased by $50 to $80 per metric ton compared to December rates in some cases, according to sources. The difficulties in finding vessel space to cover certain routes has also dampened transactions.

Sub-freezing temperatures over the last two weeks in large swaths of the U.S. territory –

including the U.S. Gulf where many base oil facilities are located – did not seem to have any unexpected impacts on operations. Refiners had prepared for the severe weather and there were no widespread power outages that affected facilities like they did during Winter Storm Uri in February 2021. Another devastating natural disaster that disrupted base oil production along the U.S. Gulf, and particularly in Texas, was Hurricane Harvey in August 2017. Producers have taken additional precautions and installed emergency generators since then. Crude oil output has been affected by the freezing temperatures in North Dakota, the third-largest oil-producing state in the U.S., but some facilities came back online after shutting down temporarily.

Base oil prices were generally exposed to downward pressure given lackluster demand against plentiful supplies. Some suppliers have not seen much change in terms of demand compared to December, while a few noted an improvement in orders since last week, likely because customers had been working off their inventories and needed to restock. A few industrial segments were doing well, but automotive continued to be on the slow side, sources said. Suppliers hoped that business would improve in February.

Blenders maintained that demand for lubricants and finished products was still down and that they remained cautious in terms of how much raw material to acquire, particularly as they were confident that most base oil grades would be available since no shortages have been noted.

U.S. producers continued to be on the lookout for export opportunities but acknowledged that business had been sluggish. “Calls are not coming in,” a source lamented.

Some key markets such as India, which had been absorbing considerable amounts of U.S. Group II grades, have been difficult to work because of higher freight rates, tight vessel space and ample inventories at destination. Nevertheless, about 8,000 metric tons of base oils were expected to be shipped from the U.S. Gulf to India in the second half of Jan.

There had been some buying interest from Nigeria, but pricing was considered unworkable due to the local exchange rate and freight costs, a source explained.

Brazil continued to receive substantial amounts of U.S. Group I and Group II grades due to planned and unplanned production outages at local facilities, but the volumes being shipped have fallen from those registered in the fourth quarter of last year.

Mexican requirements have also slipped given the more stringent import restrictions that the Mexican government has imposed on refined products, including base oils, as a means to stop the illicit import of fuels and other petrochemicals. Some light viscosity base oils had been used as fuel extenders, and these were the products that were expected to be under scrutiny. While importers have submitted the required license applications and more exports were anticipated to be finalized as these licenses receive approvals, the government was heard to be requiring additional documentation on purchases, which was hampering transactions. Nevertheless, it appeared that customers had started to check on pricing and that they would begin to place orders once they have collected all the required information. “Mexico was tough in December and early January because of the permitting issues. There are some [importers] that have received their permits as of last week, so orders have started to pick up some, but they are still not at normal levels,” a source noted.

There were a couple of base oil cargoes being discussed for shipment to the U.S., with 6,000 metric tons lined up to be shipped from Sitra, Bahrain, to the U.S. Gulf at the end of January and a 3,000-ton lot discussed for shipment from Amsterdam-Rotterdam-Antwerp to Houston, Texas, in early February.

On the naphthenic base oils front, supply and demand were described as balanced-to-tight as a result of recent turnarounds and steady consumption of the light viscosity grades.

A scheduled maintenance program at Calumet’s plant in Princeton, Louisiana, which started earlier this month and was completed last week, and a turnaround at San Joaquin Refining’s plant in Bakersfield, California, last December led to reduced inventories of most grades. Exports to Asia, Europe and Latin America have also helped keep domestic inventories in check.

The heavy viscosity pale oils were more readily available because of seasonal patterns and softer demand from some segments such as the tire and rubber industries.

Volatility in crude oil and feedstock prices also impacted market sentiment, as prices have moved up on ongoing concerns about a possible escalation of conflicts in the Middle East.

Crude oil futures surged by about 2% on Monday on supply outages in the U.S. and Russia, coupled with geopolitical tensions in the Middle East as the U.S. and the United Kingdom carried out a second joint round of strikes on Houthi targets near the Red Sea. A Ukrainian drone also struck a Baltic fuel terminal.

However, oil prices slipped on Tuesday as disappointing Chinese GDP data fueled concerns about demand in that country, while reports showed that oil output had improved in the U.S., Norway and Libya.

On Tuesday, Jan. 23, West Texas Intermediate (WTI) March 2024 futures settled on the CME at $74.37/barrel, compared to $72.40/bbl for February futures on Jan. 16.

Brent futures for March 2024 delivery settled on the CME at $79.55/barrel on Jan. 23, from $78.29/bbl on Jan. 16.

Louisiana Light Sweet crude wholesale spot prices were hovering at $77.76/barrel on Jan. 22, from $75.54/bbl on Jan. 12, 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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