Weekly U.S. Base Oil Price Report


Following a round of posted price increases issued by a majority of paraffinic base oil producers in April, Motiva surprised the market with a price decrease on its Group II+ and API Group III base oil grades this week. There was speculation that the producer was lowering its posted prices to bring them more in line with actual transaction levels, and that the move was not a reflection of the general market fundamentals that impacted other grades.

Most suppliers explained that steep crude oil and feedstock prices continued to exert pressure on base oil values, and an increase in lubricant demand ahead of the summer driving season was also lending support to the recent initiatives.

Motiva will be reducing its two Group II+ postings by 15 cents per gallon, while the company’s Group III 4 centiStoke will be decreased by 50 cents/gal, and its 6 cSt and 8 cSt grades by 30 cents/gal, effective May 1.

Most Group I and Group II suppliers raised prices in early to mid April, with these initiatves lifting Group I, Group II and Group II+ prices by 30, 35 and 40 cents per gallon, depending on the grade and the supplier, with effective dates peppered between April 11 and April 19.

It also emerged that Petro-Canada had raised its Group II prices on April 12 as well, with the 70N moving up by 20 cent/gal, its 100N by 40 cents/gal, and its 200N, 350N and 650N by 30 cents/gal. The producer’s Group II+ 100N grade also went up by 35 cents/gal on April 12, but the 65N grade remained unchanged. These posted price adjustments are portrayed in the Price Table this week, and will be reflected retroactively to April 12, which is when they went into effect.

The April initiatives closely followed a previous round of increases that was implemented between March 15 and April 1. All of the adjustments were driven by firmer crude oil and feedstock prices and improving demand ahead of the summer driving season, unofficially kicking off on Memorial Day on May 27 in the United States. While there were reports of temporary value allowances and special discounts having been granted when the increases were first announced, it appears that all the initiatives have now been implemented.

On the naphthenic base oils front, Calumet, Ergon, Process Oils (an affiliate of Ergon that markets Cross Oil products) and San Joaquin Refining also raised naphthenic base oil prices by 30 cents/gal and 35 cents/gal, between April 15 and April 22, driven by similar fundamentals to those observed on the paraffinic side. Suppliers were standing firm by these initiatives and the increases were reported to have been applied.

A fairly tight supply and demand balance supported the increases, despite crude oil price fluctuations, particularly as the light grades used for transformer oils saw healthy demand on the back of recent plant turnarounds. Buying interest for the heavy-viscosity grades from the industrial, rubber and tire segments has also picked up ahead of the busy summer season.

Despite heightened activity during the spring lubricant production season, suppliers on both sides of the business agreed that base oil demand had not reached anticipated levels yet. Participants said that many different factors were affecting the market, including longer oil drain intervals as newer models are increasingly on the road, a moderate uptick in hybrid and electric car sales, inflation, high interest rates and borrowing costs, and lubricant inventories that were still being worked down. Blenders were keeping a cautious stance in terms of purchased quantities.

Crude oil and feedstock price volatility also added a layer of uncertainty to the market. Crude oil futures have risen significantly since the beginning of the year, and remained at elevated levels given prolonged production cuts by OPEC+, the ongoing Israel-Hamas conflict and the Russian war on Ukraine.

However, futures fell by $1 per barrel on Monday as the U.S. Secretary of State, Antony Blinken, made a renewed diplomatic push in the Middle East to secure a cease-fire in Gaza. A successful cease-fire agreement was expected to limit the geopolitical risk premium factored into oil prices, mitigating concerns that the war in Gaza could lead to a wider conflict in the Middle East and create crude supply disruptions. Futures continued their downward trek on Wednesday, on rising crude inventories and production in the U.S. – the world’s biggest oil consumer – coupled with strengthening hopes of a cease-fire in the Middle East.

On Tuesday, April 30, West Texas Intermediate June 2024 futures settled on the Nymex at $81.93 per barrel, compared to $83.36/bbl on April 23.  

Brent futures for July 2024 delivery were trading on the ICE at $87.86 on April 30, compared to $88.51/barrel for June futures on April 23.  

Louisiana Light Sweet crude wholesale spot prices were hovering at $87.56/barrel on April 29, from $87.12/bbl on April 22, according to the Energy Information Administration.

In terms of base oil export activity, the pace has slowed down as buying interest appeared to be weakening on ample supplies at various destinations and higher prices for U.S. cargoes, which discouraged some importers. Most base oil segments were well-supplied in the U.S., although the Group I base oils were said to be the tightest as output volumes of these grades have fallen in recent years, while demand for specific grades such as bright stock remained strong.

Group I and Group II spot prices have moved up, driven by higher posted prices, steeper crude oil and feedstock costs and tighter supplies of certain grades. While U.S. base oils were expected to remain plentiful as refiners continued to promote base oil output over that of diesel because of more favorable margins, several export transactions have tightened availability. Maintenance work and a partial shutdown at a Group II plant have exacerbated the tighter conditions. A Group I producer was also planning a one-week turnaround later this month. Spot prices for Group I and Group II grades were heard to have inched up by 5 to 10 cents/gal from a week ago.

A couple of U.S. cargoes were quoted in shipping circles, with a 6,000-metric ton lot expected to be shipped from the U.S. Gulf to El Dekheila, Egypt, in May and about 10,000 tons to 20,000 tons earmarked for shipment from the U.S. Gulf to West Coast India and/or Hamriyah, United Arab Emirates, this month as well.

Mexican buyers continued to look for U.S. base oil cargoes, but there was a big gap between bids and offers. Offer levels have climbed on the back of domestic posted price increases in the U.S., but buyers had their eyes on cargoes waiting at the U.S.-Mexico border, which they thought could be secured at lower prices. There were reports of Group I and Group II light viscosity grades hovering at the $3 per gallon mark in Brownsville, Texas, but no transactions were confirmed at these levels.

Buying appetite for U.S. imports in Brazil has shown an uptick as lubricant activity typically increases in May and June, supporting higher spot export price indications. Many buyers preferred to secure local supplies first as domestic prices had been lowered since the beginning of the year, and then resort to imports if needed, but local prices were heard to have been increased as well.

Group III availability has started to lengthen in the Americas, and this may have partly triggered Motiva’s posted price decrease on Group III grades. A South Korean producer completed a turnaround at its plant in South Korea last week and additional Middle East cargoes were expected to be arriving in the Americas because demand and prices in other regions were weaker. Domestic suppliers with the ability to adjust output levels have increased the production of Group III grades versus Group II, adding to the already plentiful supplies, despite increased demand for high-performance Group III base oils from the lubricants industry. Group III prices have started to look increasingly attractive for blenders with the ability to switch from Group II to Group III grades.

Rerefined products were also heard to be making great strides in terms of conquering market share, and additional rerefined capacity was expected to come on stream in the second half of the year.

Group III spot prices were therefore exposed to downward pressure, with spot indications for the 4 cSt edging down by about 15 cents/gal from the previous week given ample availability of this grade, and prices for all grades hovering at three-year lows. “The margins for Group III base oils keep going down,” a supplier noted. Producers’ margins were squeezed because production costs have risen on the back of steeper crude oil prices and freight rates following transportation disruptions in the Suez Canal and Panama Canal in recent months, while spot prices were under pressure due to a supply and demand imbalance.

SK Enmove’s Group III base oil plant in Ulsan, South Korea, completed a maintenance program last week, which had started in mid March. The turnaround has likely tightened short-term inventory, but the producer continued to meet contract commitments during the outage as it had built inventories ahead of the turnaround and its plants in other countries were also supporting supply. SK Enmove also plans to shut down its plant in Dumai, Indonesia, for a month-long turnaround in May, while a turnaround will also be undertaken at the company’s plant in Cartagena, Spain, during the second half of the year.

Another South Korean Group III producer, S-Oil, has scheduled a turnaround at its Onsan plant in September/October. Nevertheless, Group III availability in Asia was deemed plentiful, reflecting conditions in most regions.

Downstream, lubricant and finished products manufacturers tried to resist the base oil price increases because of lukewarm finished products demand and ongoing competitive pricing among suppliers to protect or expand market share. There was talk about temporary value allowances being granted to some base oil accounts, but how widely this was implemented could not be confirmed. Some lubricant manufacturers were hoping to postpone the implementation of base oil increases until lubricant price increases could be pushed through.

Lubricant manufacturers were hoping to raise finished product prices in May to offset steeper base oil values and other costs. “Our demand is down, and margins are being squeezed,” a source remarked, adding that aside from climbing base oil values, blenders were also facing additive increases. Additive suppliers were planning to increase prices by 8% to 10% in May.

Major lubricant manufacturers have started to join those independent suppliers who had originally nominated price increases, and this seemed to offer further support to the initiatives, although many suppliers were still hesitant, waiting to see if the increase announcements became more widespread. A large blender has announced a markup of up to 10% on finished lubricants, effective May 16, while ExxonMobil was also reported to have communicated a finished lubricant price increase of up to 15%, with an effective date of May 22.

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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