U.S. Base Oil Price Report


Reports that the number of new coronavirus cases might be leveling off in some areas of the United States was welcome news as people and businesses hoped for an easing of restrictions and a gradual return to normalcy. All segments of life have been affected by the losses and hardships brought about by the pandemic – and the base oils and lubricants industry was no exception.

It may be some time before the different states are ready to reopen businesses and ease rules about social distancing, as the risk of a resurgence in new cases would be disastrous, but keeping restrictions in place may lead to deeper social and economic devastation. This year is likely to be the worst for the global economy since the Great Depression, the International Monetary Fund said.

Base stock and lubricant suppliers acknowledged that due to stay-at-home orders and imposed limits on mobility, there had been a significant reduction in driving and the use of public means of transportation, leading to a sharp drop in fuels and lubricants demand. While statistics about lubricants were not yet available, this week, gasoline demand was off 45-50 percent from last year, with diesel demand down 15-20 percent, according to initial surveys of large retailers, OPIS reported.

As a result of the gasoline and other fuels demand destruction, refineries have had to dial back run rates because storage was also filling up fast, and the rate cuts were expected to affect base oil production as well.

While refiners did not show much alacrity to divulge current operating rates, it was heard that Excel Paralubes, HollyFrontier, Petro-Canada, Chevron, Paulsboro and ExxonMobil, among others, had reduced rates between 20 and 30 percent, although some may have cut back production even further.

The decline in the use of private vehicles, trucks and buses and the closure of many service stations and garages have also prompted a marked drop in the collection of used motor oil, sources said.

Base oil rerefiners depend on this used motor oil to run their plants, and the lack of feedstocks has prompted reduced run rates and closures. With the exception of a couple of rerefineries, which were heard to be running at normal rates, a majority of other U.S. rerefining facilities were expected to have either already shut down, or may be idling operations in the next few weeks.

The absence of workers from factories due to virus infections and the need to keep social distancing at these facilities also led to a reduction in operating rates and even temporary suspension of operations at numerous manufacturing plants. This, in turn, ensued in reduced requirements for industrial lubricants.

Requirements from a few key segments that keep food supply and emergency and medical operations running was steady, sources said.

Finished lubricants producers and sellers expressed their concern at the sizable drop in demand in all segments of the market. “I don’t think we’ll even get as high as 25 percent of ‘normal’ this week,” a source noted.

On the naphthenics side of the business, it was heard that supplies were slightly more balanced against demand than on the paraffinic front because of Ergon‘s prolonged turnaround, which has been extended until the end of April, and steady demand from a number of sectors, including process oils.

Base oil exports have suffered due to the pandemic, as receivers that regularly import U.S. products showed little to no buying interest at the moment. One of these destinations was India, where a country-wide lockdown has extinguished demand for both fuels and lubricants.

Demand from Mexico was also heard to have plummeted, and the situation was further exacerbated by a devaluation of the Mexican currency, the peso, and other financial difficulties. The drop in demand was especially poignant as U.S. base oil exports to Mexico had reached six-month record levels in January, driven by the use of light viscosity base oils for fuel blending.

A sign that trade between regions has been minimal was the fact that very few shipping inquiries and fixtures emerged during the week. There were also difficulties in arranging shipments as inter-state travel has been restricted and many truck companies and ship operators have trimmed the number of employees working during different shifts to avoid the spread of the virus.

The one factor that was somewhat in favor of base oil producers was the relatively low price of crude oil, particularly compared to early March. Thanks to the recent plunge in oil prices and despite the hefty base oil markdowns implemented in March, base oils margins were hovering at better levels than in years past, sources said.

Crude oil futures inched lower on Tuesday, as investors were skeptical that record supply cuts agreed by the OPEC+ would be able to offset the demand destruction caused by the coronavirus pandemic. Prices were under additional pressure following API reports of a large U.S. inventory build. On the other hand, an expected drop in U.S. shale output provided some support.

OPEC+ agreed over the weekend to cut output by 9.7 million barrels per day in May and June, equating to about 10 percent of global supply before the coronavirus outbreak. Additional output cuts by the U.S. – the world’s largest producer – and other nations outside the OPEC+ group will take the estimated total reduction to about 19.5 million bbl/day, CNBC.com reported.

On Tuesday, April 14, WTI futures settled at $20.11 per barrel on the CME/Nymex, and had closed at $23.63/bbl on April 7. (CME Group closed its Chicago trading floor as a precaution on March 13; all products continue to trade on CME Globex).

Brent futures for June delivery were reported at $29.60/bbl on the CME on April 14, from $31.87/bbl on April 7.

Light Louisiana Sweet crude wholesale spot prices settled at $19.11/bbl on April 13 and had closed at $22.21/bbl on April 6, according to the Energy Information Administration.

Low sulfur vacuum gas oil and high sulfur VGO were trading at WTI plus $5.25/bbl (or $25.36/bbl) on Tuesday, April 14, and were trading at WTI plus $0.50/bbl ($24.13/bbl) on April 7, according to OPIS/PetroChem Wire assessments.

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.

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

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