Ergon announced a decrease in pricing of naphthenic oils in the North American market by 35 cents per gallon, effective April 24. The decrease applied to all viscosities.

San Joaquin Refining decreased prices by 20 cents/gal to all customers, with an effective date of April 24 as well. This move applied to all of the producer’s naphthenic oils, with the exception of transformer oil, which was not included in the decrease.

Calumet reduced pricing on all of its naphthenic base oils by 35 cents/gal, effective April 28.

Cross Oil said the company was not announcing an adjustment, but would evaluate each account on a case-by-case basis. Other suppliers were also heard to be reviewing pricing at this time.

Naphthenic base oil prices had last been revised down by 20-25 cents/gal in mid-March.

Compared to supply on the paraffinic front, naphthenic product availability appeared to be more balanced against current requirements, and this was partly attributed to the recent turnaround at Ergon’s naphthenic base oil plant in Vicksburg, Mississippi.

The shutdown had taken a significant amount of product out of the market, despite the fact that the producer continued to meet contract obligations during the outage. The plant has capacity to produce 22,000 barrels per day of naphthenic base oils, according to Lubes’n’Greases‘ Global Guide to Base Oil Refining.

Other suppliers said that the turnaround had resulted in an increase in orders for them. “Demand has been good through April, but we are expecting a slowdown in May,” a source noted, adding that light grades and transformer oil sales had been very strong, while heavier grades were fairly steady.

At the same time, a reduction in naphthenic crude oil imports could lead to lower output at a couple of refineries. An upcoming shutdown may also result in reduced availability.

Calumet has scheduled a routine turnaround at its 6,900 b/d naphthenic base oils plant in Princeton, Louisiana, in the first half of June for approximately two weeks.

Suppliers conceded that the additional orders that they had received over the last two months would likely come to an end as Ergon has restarted its base oil plant. In a press release, Ergon announced the completion of the scheduled turnaround at its naphthenic refinery. The last unit was back on line on Monday, April 20, the company said. Despite the fact that the turnaround was extended beyond its original restart date in late March due to covid-19 precautions, there were no interruptions in supply to Ergon’s customers.

Most participants concurred that base oil and lubricant demand had suffered since the lockdowns and stay-at-home orders had been implemented, as driving has plummeted. The general consensus was that lubricant business was down around 25-30 percent, although some segments may be doing better than others – depending on what downstream sector they served – and consumption in some of the weaker segments could be down by as much as 75 percent.

“Some of our business has stayed pretty strong, but other areas are heavily affected,” a supplier acknowledged, while another explained that “blenders in the Midwest are doing better. The ag[ricultural] oil business is still pretty good. Farmers are out working the spring growing season.”

Lubricant demand from the automotive sector has tumbled as driving of personal vehicles has declined. “This would have an especially hard impact on API Group III base oil, which is the key grade for high end passenger car motor oil,” a source commented.

Trucks are still on the road, delivering food, health care equipment, online orders, mail and other essentials. In fact, demand for deliveries has grown so much that most drivers are working overtime, according to media reports, and diesel demand has not dropped to the same degree as gasoline.

Consumption of petroleum in the United States has plunged to its lowest level in decades, as lockdowns restrict travel and the economy slows, the Energy Information Administration reported last week. For the week that ended April 20, gasoline demand fell to 5.065 million barrels per day, or a 48 percent decline in demand versus the same period a year ago. Gasoline is down 24 percent since last week. It is the lowest demand number reported since January 1969, according to Forbes.

As a consequence of the downstream demand destruction, base oil orders have also plummeted, leaving some suppliers no choice but to significantly scale back operating rates, with some even considering temporary shutdowns. Still, a number of plants were running at full rates, including Calumet’s two units in Louisiana.

In order to move product, some producers were heard to be granting TVAs – temporary voluntary allowances or value adjustments – of between 25 to 40 cents/gal into specific accounts. This contributed to a widening of the delta between posted and spot prices.

On the more positive side, with some states lifting lockdowns and allowing businesses to reopen, shuttered factories were expected to restart operations. Automotive plants and tire manufacturers were anticipated to gradually ramp up production rates as of early May, which should lead to increased lubricants and additives demand.

At the same time, due to the financial difficulties that a large part of the population was facing, automotive sales were likely to remain down in the next few months, which may require an adjustment in the number of vehicles going through production lines.

Exports from the U.S. have been heavily affected by the pandemic and the measures taken by other countries to control the spread of the virus. One of the main markets for exports has been Mexico, but demand has plummeted, not only because of the dearth in activity, but because of the devaluation of the local currency and the lack of credit. “Mexico went completely dead,” a source emphasized, while another agreed that finalizing export transactions into Mexico had turned extremely difficult.

A number of transactions were heard to have been concluded between U.S. Gulf producers and receivers in India, Africa and the United Arab Emirates at substantially lower spot prices than were prevalent a month ago. There were rumblings that a Group II cargo had changed hands near $1/gal FOB, but this could not be confirmed.

Nevertheless, storage was becoming more and more limited, as lockdowns continued and base oil demand was not picking up, so lowering prices would not necessarily lead to more sales, sources warned.

“We’ve all been hearing about the shortage of tankage for crude, which drove this incredible instance of negative prices in the U.S. [last week]. The same will apply for base oil, although not quite as drastic because refineries can stop making base oil, while it is not so easy to shut down an oil well. However, shutting down a base oil refinery is a last resort, and producers will take that step with great reluctance,” a market source explained.

Both consumers and sellers appeared unable to make long-term plans, as the situation remained fluid and seemed to be changing on a daily basis. “We are taking it one day at a time, and will make any adjustments if necessary,” a source conceded. “Demand for fuels and lubes won’t get back to 2019 levels before next year at the earliest,” another source predicted.

Aside from the demand destruction, plummeting crude oil futures were also placing pressure on base oil numbers. Crude oil is still contending with the devastating effects of the coronavirus pandemic and the ensuing lockdowns and lack of demand.

West Texas Intermediate oil futures posted a loss of almost 25 percent on Monday and traded near $10 per barrel as reignited concerns about a scarcity of oil storage sent the June contract to its second-lowest settlement on record.

Futures finished lower on Tuesday, giving up an earlier spike to intraday highs on the back of a report of a bomb explosion on an oil tanker in Syria. The explosion on the tanker in the northern Syrian city of Afrin killed at least 10 people and was being investigated, Reuters reported.

On Tuesday, April 28, June WTI futures settled at $12.34 per barrel on the CME/Nymex, and had closed $11.57/bbl on April 21.

Brent futures for June delivery closed at $20.46/bbl on the CME on April 28, from $19.33/bbl on April 21.

Light Louisiana Sweet crude wholesale spot prices settled at $16.67/bbl on April 27 and had closed at minus $34.73/bbl on April 20, according to the Energy Information Administration.

Coronavirus Note: As we are all affected in one way or another by the devastating coronavirus crisis, our most sincere thanks go to the brave and dedicated first responders, health care providers and other essential personnel who work tirelessly to protect us, secure our food supply, and keep us safe. We would also like to recognize those companies who have donated to various covid-19 initiatives, and are manufacturing sanitizers, disinfectants and other supplies to fight the spread of the virus.

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

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