U.S. Base Oil Price Report


Lingering Covid-19-related issues and the Memorial Day holiday resulted in a fairly subdued domestic base oils market, but participants clung to hopes that activity would improve as businesses across the United States reopened, more people took to the road, and factories resumed production.

Most refineries and base oil plants had dialed back production to avoid a build-up of inventories as demand for fuels and lubricants has plummeted since lockdowns and other restrictions were implemented almost two months ago. It was still unclear when run rates would increase, as uncertainties continued to cloud business prospects, but a number of refineries have increased run rates as demand for gasoline and diesel has started to climb.

Producers and manufacturers were concentrating efforts on implementing measures to avoid the spread of the virus, while many continued with remote work practices. “As a generalization, the industry is very focused on safety and safe operations, which is paying dividends in the current circumstances,” a source explained, adding that, “Plexiglass barriers, masks, gloves and social distancing is now de rigueur in our operations.” Naturally, all these changes require significant investment and placed a huge burden on the already-strained finances of many companies.

“We have maintained a good amount of business from loyal customers. We worry about the financial strength of some of our customers to be able to pay their bills. Only a very few have been unscathed,” a source conceded. 

For a majority of base oil suppliers, a return to regular demand levels was key. However, blenders and end-users were still working off existing inventories – which were acquired at a time when base oil prices were higher – and appeared hesitant to place large orders as demand for finished products remained lackluster. “I really don’t see the base oil market improving until about mid-June,” a source commented.

While many were confident that a restart of activities at car and tire manufacturing facilities would ensue in an increase in lubricants demand, automakers such as Ford and General Motors were heard to be facing some difficulties in securing raw materials and parts because certain critical suppliers were not ready, or imported components had not yet been delivered.

Factories were also not operating at 100 percent capacity, as staff numbers have been reduced to allow for social distancing. Until more factories reopen with full shifts, demand for industrial oils and metalworking fluids was likely to hover below usual spring levels, a source said.

An increase in driving of passenger cars during the holiday weekend as lockdown measures eased was seen as a positive development, possibly leading to an increase in passenger car motor oil consumption in coming weeks.

Some reports of fresh base stock buying interest have started to surface, with suppliers mentioning a small increase in the number of transactions. “I am pleased to now see a modest uptick in orders, which is quite different from the past two months where order cancellations outnumbered new orders,” a source noted. 

On the naphthenics front, market players commented that supply and demand appeared to be more balanced than on the paraffinic side, but availabilities were not considered tight, particularly as exports to Europe and Mexico had declined.

Naphthenic base oil producer Calumet was expected to start a routine turnaround at its 6,900 barrels per day naphthenics base oils plant in Princeton, La., in the first half of June. The turnaround was anticipated to last approximately two weeks and may result in tightening conditions.

The slightly improved business environment on both the paraffinic and naphthenic fronts have led suppliers to gradually withdraw discounts and temporary value adjustments or voluntary allowances, with participants sensing that prices had bottomed out.

API Group I grades were heard to be less readily available that Group II cuts as U.S. production is comparatively lower. Volumes of Group III grades imported from South Korea were said to have held steady, or gone down slightly since the beginning of the year, while imports from the Middle East were expected to show an uptick, particularly as a Middle East producer has restarted its base oil plant, following a turnaround. Spot indications for most grades in all categories were heard to have edged up by 20 to 40 cents per gallon during the week, as participants embarked on fresh negotiations.

Climbing feedstock and crude oil values offered further support to base oil numbers. Crude oil futures finished higher on Tuesday on improved demand prospects, a relaxation of lockdown measures in major economies, a reduction in the oil rig count in the U.S. – which is falling at the fastest rate on record – and a large draw in U.S. crude inventories.

On Tuesday, May 26, July WTI futures settled at $34.35 per barrel on the CME/Nymex, and had closed $32.50/bbl for June futures on May 19.

Brent futures for July delivery closed at $36.17/bbl on the CME on May 26, from $34.65/bbl on May 19.

Light Louisiana Sweet crude wholesale spot prices settled at $35.24/bbl on May 22 and had closed at $34.58/bbl on May 18, according to the Energy Information Administration. There was no trading on May 25 due to the Memorial Day holiday.

Low sulfur vacuum gas oil and high sulfur VGO were trading at July WTI plus $4.25/bbl (or $38.60/bbl) on Tuesday, May 26, and were hovering at $38.50/bbl on May 19, according to OPIS/PetroChem Wire 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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