U.S. Base Oil Price Report


As some U.S. states prepared to ease Covid-19 related restrictions, participants were looking forward to the gradual reopening of business, as most segments of the base oils and lubricants industry have been dramatically affected by the lockdown measures. At the same time, players acknowledged that it may take a long time to get back to pre-pandemic activity levels.

Analysts predicted that gasoline demand would pick up once the population returns to work and businesses reopen, because people have grown tired of staying at home, and will likely return to their workplaces as well. Additionally, they may prefer not to take public transportation for fear of infection. Many may even drive long distances to get to their destination as airlines have cut back flight schedules and fares have gone up.

These trends may translate into more lubricant demand from the automotive segment, experts said. On the other hand, because of the battered financial situation of many families, and given that car dealerships remained closed, new car sales were expected to be significantly down.

“Now that most of the country is stuck in their homes without any idea of when any semblance of normal life can begin, it’s hard to make major life decisions when no one knows if schools will be in session come September, or when or if jobs will return for the millions of Americans out of work,” a reporter at The New York Times commented.

One of the lubricant segments that has suffered the most demand destruction is the one serving the passenger car motor oil sector. With stay-at-home rules having been in place for several weeks, driving of personal cars has been cut to a minimum, which has resulted in a crushing drop in gasoline and lubricants consumption.

The automotive industry has been hit from several fronts. Not only has the drastically reduced mobility impacted demand, but the implementation of social distancing and the lack of parts and components coming from overseas, mainly China, has led to the temporary closure of car and tire manufacturing facilities. “The tire companies have all shut down for weeks. There is a lot of oil in tires. Some have announced, as did General Motors, that they will reopen gradually soon,” a source noted.

Metalworking fluids have also experienced a setback due to the challenges facing the automotive sector. “Metalworking is part of the auto industry upstream supply chain. It appears several companies are experiencing a slowdown as expected due to the overall economic situation,” the same source explained.

On the other hand, the adhesive business appears to have fared better than other sectors during these troubled times. According to a market source, “Although a lot of adhesives are used in the auto industry, the applications are more diversified, so the adhesive companies are not so adversely affected and some have been even busier.”

Demand for lubricants in the heavy duty sector has also been strong, as truck deliveries of groceries, hospital equipment, online orders, mail and other essentials continue practically undeterred and have actually increased in many states.

Another segment where demand has remained fairly steady is the transformer oil business. At least one U.S. pale oil producer said it was sold out of transformer oils in March, while there was ample availability of pale oils that go into other segments.

Likewise, lubricants used in agricultural activities are also seeing relatively healthy demand, with blenders in the Midwest keeping busy as orders continue to come in during the spring growing season.

On the pricing front, naphthenic base oil price decreases have now been implemented. Producers Ergon, Calumet and San Joaquin Refining all reduced prices by 20 and 35 cents per gallon – with the exception of transformer oils for San Joaquin’s customers – during the last week of April, while Cross Oil will be evaluating accounts on a case-by-case basis.

While there have been no posted price revisions on the paraffinic side, spot prices have plummeted on account of a lack of demand, coupled with growing inventories at several plants.

It was heard that following an API Group II export cargo transacted at $1.00-$1.05/gal FOB originating in the U.S. Gulf for India last week, another similar parcel was offered to a trader, but it was difficult to find any takers, as the Indian market was saturated and demand was still weak due to the lockdowns.

Similar price levels were heard for offers of Group II light grades into Mexico, with numbers at Brownsville mentioned at around $1/gal, but muted demand, together with financial issues, were preventing the conclusion of business.

There were also reports of suppliers hoping to finalize transactions with traders to move U.S. product to the Middle East, with a shipping inquiry for a 3,000 metric ton cargo of Group II light-vis base oils surfacing late last week.

Reports of significant discounts and TVAs – temporary voluntary allowances or value adjustments – granted by suppliers anxious to find a home for their barrels of base oil continued to circulate. Some of the discounts were mentioned in a range of 20 to 60 cents per gallon. However, players said that even the lowest numbers would likely fail to attract fresh business as buying appetite has fizzled. “Demand is as flat as a pancake,” was a source’s colorful description of the current market situation.

A majority of sources agreed that base oil demand has fallen by approximately 50 percent in most segments since March, while finished lubricant consumption was down by about 35-70 percent, depending on the application. Prices for finished lubricants have also been adjusted down accordingly.

Refiners in the United States have been cutting refinery runs over the past month, while a majority of base oil producers have also trimmed operating rates. “Lube sections at refineries are generally running at 70 percent, looking at going to 50 percent, almost the same for the fuels,” a source noted.

Some may eventually have to take plants off line altogether. “The only solution to this situation is not to lower and lower the price, it is to shut in supply,” was a source’s opinion, adding that some refineries in Europe and Asia had already done so.

A number of rerefiners have lowered operating rates as well, or shut down plants because of a lack of used motor oils, which are utilized as feedstock. It was heard that Heritage-Crystal Clean would be moving up an extended turnaround of about three weeks at its rerefinery in Indianapolis, Indiana, to May from an original date in the fall, to take advantage of a period when demand is still down. The facilities were anticipated to be taken off-line later this week. The turnaround may be longer than the usual two weeks due to the added Covid-19 precautions.

Upstream, more optimistic views were driving crude oil prices this week, with futures jumping on Tuesday as analysts hoped that vehicle traffic and fuel demand would recover given that several U.S. states, along with a few European and Asian countries, have begun to relax coronavirus lockdown measures.

“Improvement in fuel demand and economic recovery is being reflected across petroleum markets. Futures have rallied to one-month highs,” Opis reported.

On Tuesday, May 5, June WTI futures settled at $24.56 per barrel on the CME/Nymex, and had closed $12.34/bbl on April 28.

Brent futures for July delivery closed at $30.97/bbl on the CME on May 5, from $20.46/bbl for June futures on April 28.

Light Louisiana Sweet crude wholesale spot prices settled at $26.27/bbl on May 4 and had closed at $16.67/bbl on April 27, according to the Energy Information Administration.

Low sulfur vacuum gas oil and high sulfur VGO were trading at June WTI plus $8.50/bbl (or $33.06/bbl) on Tuesday, May 5, and had traded at WTI plus $11/bbl ($23.34/bbl) on April 28, according to OPIS/PetroChem Wire assessments.

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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