U.S. Base Oil Price Report


Most of the world was consumed by concerns about the relentless advance of the Covid-19 pandemic; its effects on the population and economy are unfathomable and difficult to assess at this juncture. The outbreak’s impact on the base oils and lubricants markets is deeply linked to the ways the crisis has fundamentally changed life for most people and how business is being conducted.

Aside from the collapse of crude oil prices, which in turn triggered hefty decreases of between 40 and 60 cents per gallon in base oil postings, efforts to contain the spread of the virus have led to movement restrictions and lockdowns in most of the United States, resulting in a significant reduction in driving, both of private vehicles and of public means of transportation.

Following a marked decrease in international service and routes, a few airlines have further limited the number of domestic flights. United Airlines and American Airlines announced over the weekend that they would both be cutting New York City-area operations in response to an increase in the number of coronavirus cases there.

All these reductions have created a huge dent in gasoline, diesel and jet fuel consumption, and demand for finished lubricants has also declined, with a accompanying downturn in base oil consumption. According to the latest OPIS demand data for the week ending March 28, same-store gasoline sales were down close to 47 percent.

“Finished lubricants business definitely slowed down from last week,” a base oil buyer noted. The market has been hit by the consequences of the Covid-19 outbreak just when demand should be picking up for the busy spring production cycle.

“It will take another two weeks to really start showing up in the volume figures as suppliers are just starting to review March figures. January and February looked fairly good through mid March. From here on out, I believe we’re on a downward slope,” another source added.

While some downstream segments such as white oils, process oils and transformer oils have seen sluggish conditions, sources said that activity had not been as slow as for other sectors of the market. “Demand for white oils and process oils has been steady. Not robust, but better than you would think,” a market source commented.

Tire manufacturers have either reduced or suspended production due to the absence of employees, the need to keep the number of workers to a minimum to comply with social distancing rules, and a lack of demand from the automotive segment. Tire manufacturing plants are large consumers of process oils.

A number of refiners were heard to have lowered operating rates to avoid an unmanageable buildup of inventories, as storage was getting tight as well. It was heard that Paulsboro, Motiva, and ExxonMobil were just a few of the refiners that had trimmed refinery run rates, but specific numbers were not available, and it was not immediately clear how much base oil production had been affected.

Naphthenic base oil producer Ergon has postponed the restart of its Vicksburg, Mississippi, plant in response to the coronavirus epidemic. The base oil plant is currently undergoing a routine turnaround which started on March 5 and the unit was originally expected to resume production at the end of March, but is likely to remain down for the remainder of April.

Participants also expressed concern about the sharp swings in crude oil pricing. After slumping to their lowest levels in 18 years, both West Texas Intermediate and Brent futures jumped late last week on news that Russia and Saudi Arabia might end their price war and agree to the implementation of production cuts.

An OPEC+ virtual meeting that was supposed to take place on Monday has been postponed, with an emergency meeting of the oil ministers of the G20 expected to take place on Thursday instead.

Crude oil prices climbed in early trading on Tuesday as OPEC+ appeared ready to discuss a global output cut, but skepticism about OPEC and non-OPEC producers’ ability to reach an agreement capped gains. Futures eventually lost steam on reports that the American Petroleum Institute expected a huge crude oil inventory build for the week ending April 4 due to demand destruction stemming from the coronavirus.

On Tuesday, April 7, WTI futures settled at $23.63 per barrel on the CME/Nymex, and had closed at $20.48/bbl on March 31. (CME Group closed its Chicago trading floor as a precaution on March 13; all products continue to trade on CME Globex).

Brent futures for May delivery were reported at $31.87/bbl on the CME on April 7, from $22.74/bbl on March 31.

Light Louisiana Sweet crude wholesale spot prices settled at $22.21/bbl on April 6 and were trading at $20.05/bbl on March 30, according to the Energy Information Administration.

Low sulfur vacuum gas oil and high sulfur VGO were trading at WTI plus $0.50/bbl (or $24.13/bbl) on Tuesday, April 7, and were trading at WTI plus $0.25/bbl ($20.73/bbl) on March 30, 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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