U.S. Base Oil Price Report

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While most of the market’s attention was captured by the impact of the coronavirus outbreak and the restrictions imposed on businesses and the general population in the United States, a number of base oil price decreases in both the paraffinic and naphthenic camps emerged, completing the round that started in early March.

SK Americas, Phillips 66 and Petro-Canada lowered their posted prices this week, following in the footsteps of fellow paraffinic producers who had already adjusted down prices earlier in the month.

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SK communicated a 30 cent per gallon reduction for its API Group II bright stock, Group II+ and Group III base oils, effective March 16.

Phillips 66 also communicated that the company had decreased its Group II+ and Group III Ultra-S base oil posted prices by 30 cents/gal, with an effective date of March 16.

Petro-Canada will lower its Group III posted prices for all three grades (3, 6 and 8 cSt) by 30 cents/gal, effective March 20. The producer had already adjusted down its Group II/II+ grades, and this move affects only the Group III cuts.

On the naphthenic front, Cross Oil and San Joaquin Refining joined Ergon and Calumet in implementing a price decrease as well.

Cross Oil reduced pricing on products 30 SUS (Sabolt Universal Seconds) to 300 SUS by 5 percent, while products 500 SUS to 3500 SUS were reduced 8 percent, effective March 16.

San Joaquin lowered its naphthenic base oils by 20 cents/gal across the board, with an effective date of March 17.

Ergon and Calumet had previously announced a 25 cents/gal decrease for their pale oils, effective March 13 and March 17, respectively.

Market participants were trying to adapt to the turmoil caused by the coronavirus outbreak and the restrictions implemented by the United States government, which were altering all aspects of daily life and disrupting business and manufacturing activities.

Despite the general upheaval, base oil suppliers said that demand continued to be fairly healthy, especially considering the uncertainties participants were facing in downstream segments as the situation was still very fluid.

“Relative to the coronavirus, it has been business as usual. Base oil demand has been steady,” a producer noted. “I have not seen any drop in demand whatsoever. We’ve got quite a few orders both domestically and internationally,” another producer said, while a third concurred: “We have not seen a dramatic effect – yet. During these unprecedented times, we are paying close attention to our customers and orders and continue to evaluate the situation daily.”

On the naphthenic side, producers have also seen a steady flow of inquiries, which some of the demand partly attributed to the turnaround at Ergon’s naphthenic base oils plant in Vicksburg, Mississippi, which started on March 5. Ongoing supply issues from another producer also seemed to have had an impact. “Demand seems stronger than I would otherwise suspect given everything that is going on,” a supplier conceded.

A base oil consumer explained that while some manufacturers were reducing operating rates and cutting production, others were ramping up output to meet the need for a number of products that consumers had snatched from shelves over the last few days, as quarantines and lockdowns were being imposed across the nation. This would likely result in a moderate increase in demand for industrial lubricants, sources speculated.

At the same time, some manufacturing plants have halted production due to the dearth of components originating in Asia, and the absence of personnel due to recent directives that were keeping workers away from their workplace.

Several auto makers continued to run factories at full tilt, despite analysts warning that the virus would significantly curtail demand around the globe. In China, where the illness originated, car sales plunged a record 79 percent in February, Automotive News.com reported.

With Covid-19 infections now present in every state, refiners have restricted employee travel and were allowing office staff to work remotely whenever possible, while a few were implementing different shifts at their plants to comply with “social distancing” directives.

Participants also said that they would previously be making sales and purchase projections for one, two, or three months in advance, but everyone seemed to be taking one day at a time. “It’ll be an interesting week,” a source remarked.

The impact of the pandemic on international base oil trade had so far been mostly linked to business in Asia, but the effects have now reached the Americas. Suppliers said that while Mexican buying interest for U.S. base stocks remained quite healthy, the devaluation of the local currency, the Mexican peso, against the dollar has made products more expensive.

Mexican buyers were hesitant to commit to cargoes, while suppliers were unsure of what kind of offer levels buyers would accept during fresh negotiations.

There have also been some reports of backlogs of base oil cargoes in Brownsville, a transportation hub for most product moving south of the border, but participants said the issues were not serious at the moment.

Marine transportation has been impacted as port operations in Asia experienced delays, and there were fewer vessels covering the usual routes due to a lack of cargoes. “We’ve noticed greater difficulty getting bookings for ocean freight. What used to be a one or two-week wait is now three to four-week lead time. We haven’t noticed any truck or rail delays as of yet. I’m sure that will probably change,” a source said.

Participants were also keeping a concerned watch over crude oil prices as values have plummeted over the last two weeks, with futures falling below $30 per barrel on Monday after the worldwide coronavirus outbreak worsened over the weekend.

Oil rose more than $1 per barrel in early trading on Tuesday as traders were bargain hunting, given the recent falls brought about by the pandemic and the price war between Saudi Arabia and Russia. However, concerns about a global recession and a significant decrease in oil consumption due to the economic impact of the outbreak brought prices down later in the session.

“The coronavirus pandemic and collapsing oil prices will slash the oil and gas revenues of vulnerable oil-reliant developing economies by up to 85 percent, the heads of OPEC and the International Energy Agency said in a joint statement as a growing number of countries are going into lockdown and oil demand is set to take an unprecedented hit,” OilPrice.com reported.

On Tuesday, March 17, WTI futures settled at $26.95 per barrel on the CME/Nymex, and had closed at $34.36/bbl on March 10.

Brent futures for May delivery were reported at $28.73/bbl on the CME on March 17, from $37.22/bbl on March 10.

Light Louisiana Sweet crude wholesale spot prices settled at $29.11/bbl on March 16 and had closed at $33.80/bbl on March 9, according to the Energy Information Administration.

Low sulfur vacuum gas oil and high sulfur VGO were trading at WTI plus $3/bbl (or $29.95/bbl) on Tuesday, March 17, and were hovering at $46.36/bbl on March 10, according to OPIS PetroChemWire assessments.

Lubes’n’Greases Publications shall not be liable for commercial decisions based on the contents of this report.

Historic and current base oil pricing data are available for purchase in Excel format.

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