U.S. Base Oil Price Report


Following the Labor Day holiday, market attention turned to Tropical Storm Gordon, which was headed to Mississippi and Louisiana, where several base oil facilities are located.

The National Hurricane Center predicted the storm would strengthen into a hurricane before it reached the United States Gulf Coast late Tuesday, and evacuations had already started in the area on Monday.

The U.S. Coast Guard said the ports of New Orleans, La., as well as Gulfport and Pascagoula, Miss., might have to close within 48 hours, Reuters reported on Monday.

Ergon operates a paraffinic and naphthenic base oils plant in Vicksburg, Miss., and the company confirmed that the plant was “up and running” on Tuesday. The facility can produce 3,000 barrels per day of API Group I base oils and 22,000 b/d of naphthenic oils.

There were no official status updates forthcoming from Chevron, Excel Paralubes, and Calumet, which operate base oil plants in the potentially affected areas as well.

It was heard that the staff at Chevron’s 352,000 barrel per day crude refinery in Pascagoula, Mississippi, was monitoring the storm and preparing the plant for heavy rain and strong winds, but the refinery was still running. Chevron’s base oil plant in Pascagoula has capacity of 25,000 b/d of Group II base oils.

The Excel Paralubes plant in Westlake, La., can produce 22,200 b/d of Group II base oils.

Calumet’s Princeton, La., plant, has capacity of 6,900 b/d of naphthenic base oils, while the company’s Shreveport, La. plant can manufacture 4,800 b/d of Group I, 6,600 b/d of Group II, and 400 b/d of Group III base oils, along with 100 b/d of naphthenic oils.

Sources noted that while these producers might not confirm any changes in operating rates, at least a couple of the larger facilities were likely to be idled and switched to “circulation mode” as a precautionary measure.

If this were the case, then no base oil would be produced, but there would be fewer chances of output disruptions once the units were brought back on stream and started manufacturing on-spec base oils, which could take at least four or five days, sources explained. A total of seven days’ production could be lost in this scenario, depending on what other measures were taken before the storm.

This week’s Labor Day holiday brought the summer driving season to an end, which typically ushers in a decrease in automotive lubricants consumption, leading in turn to a slowdown in base oil demand.

Base oil suppliers acknowledged that some of their cuts were longer than others, and that inventories of the heavier grades such as the Group II 600N were mounting, leading some sellers to offer competitive discounts on spot transactions, in addition to recent posted price decreases.

The downward pressure on base oil pricing due to the growing supply was juxtaposed to climbing feedstock costs as crude oil values continued to move up. However, the supply picture could change very rapidly if there are any production outages caused by weather conditions, sources commented.

Last year, when Hurricane Harvey wreaked havoc along the Gulf Coast, a number of facilities did not shut down ahead of the storm, but were forced to do so because of flooding and other damage afterwards.

Upstream, oil futures rose on Tuesday as players prepared for potential supply disruptions caused by Tropical Storm Gordon, but gains were capped by a report that indicated that stockpiles at Cushing, Oklahoma, had increased last week.

On Tuesday, West Texas Intermediate (WTI) October futures settled at $69.87 per barrel on the CME/Nymex, up $1.34 per barrel from $68.53/bbl on Aug. 28.

Light Louisiana Sweet crude wholesale spot prices settled at $76.25 per barrel on Friday, Aug. 31 (there was no trading on Sep. 3 due to the Labor Day holiday), compared to $75.10/bbl on Aug. 27, according to the U.S. Energy Information Administration.

Brent was trading at $77.43/bbl on the CME Tuesday, Sep. 4, up $1.48/bbl from $75.95/bbl on Aug. 28.

Low sulfur vacuum gas oil was at Oct. WTI crude plus $16/bbl ($85.80/bbl) and high sulfur VGO was at crude plus $14.75/bbl ($84.55/bbl) on Aug. 31. By comparison, low sulfur VGO was hovering at $83.62/bbl and high sulfur VGO at $82.62/bbl on Aug. 27, according to data published by PetroChemWire.

Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase inExcel format.

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