U.S. Base Oil Price Report


Against the backdrop of a country roiled by protests and riots motivated by the tragic death of George Floyd, together with the ongoing effects of the coronavirus pandemic, the base oils market remained fairly subdued, but preliminary signs of improved demand have started to emerge.

While the demonstrations against police violence were not expected to have a direct and immediate effect on base oil market fundamentals, participants acknowledged that general uncertainties were weighing on consumer confidence, and this, in turn, was impacting product requirements. “It’s been a terrible 3-4 days all over the U.S. and heartbreaking to watch on TV. The looting and damage to businesses has only added to more economic hardship,” a source explained.

However, the tense situation was anticipated to affect the various industry segments differently, which has also been the case with the pandemic. The base oil segments that supply passenger car motor oils and other lubricants have seen a moderate upswing in demand with the easing of lockdown restrictions and the return to driving of personal vehicles as people left their homes to go back to work or run errands.

For some lubricant suppliers, the automotive segment has been relatively healthy throughout the lockdown period, and is in fact showing a small increase. “Domestically, our business has been strong, and in some cases stronger than it was pre-epidemic. We believe this is because people have extra time and are more willing to change their own oil. We are seeing upticks in these markets,” a source noted.

At the same time, the automotive segment has been hit hard by the virus outbreak as it brought about a significant drop in sales. Only 729,000 vehicles were sold in the month of April – the lowest since early 2010 – with light-duty vehicle sales down 59 percent year-on-year, and light truck sales down 42 percent, a sign that consumers are making a slight shift to trucks and SUVs, Oilprice.com reported.

Market participants said that prospects for base oils and finished lubricants had been grim throughout May as businesses were still closed and buyers were trying to reduce existing inventories, but the situation appeared to be improving. “We have seen orders come in last week for June that we haven’t seen since early April. That is encouraging,” a source said, while another source agreed: “Some of our smaller domestic customers have suffered, but we are starting to see things come back to a more normal level.”

Predictions of a very active hurricane season was also a concern to many market players, but padding inventories ahead of the hurricane season, which stretches from June 1 to Nov. 30 in the Atlantic Basin, did not appear to be necessary as most participants were in possession of healthy stocks.

In terms of domestic prices, participants concurred that numbers had steadied as they have bottomed out, and suppliers appeared less willing to grant discounts, although there were reports that at least one large API Group II producer has extended its TVAs until the end of June, with others expected to continue implementing similar measures this month.

The Group I segment seemed less exposed to downward pressure as availability of some of these grades have tightened. There was talk about small bright stock cargoes of European origin being offered at competitive levels, but this did not seem to have had a significant impact on domestic pricing.

Prices for Group III base oils have also started to stabilize on the back of improved demand for premium grades going into automotive applications.

U.S. base stocks demand from Mexican buyers had been almost non-existent over the last couple of months while the country was largely under lockdown measures, but manufacturing activities have resumed in many municipalities, and factories making products for export to the United States appeared to be ramping up production.

Workers returned to automotive factories along Mexico’s northern border on Monday, the first day that industries were able to join the country’s list of essential activities allowed to proceed. As a result of all of these reopenings, there has been an increase in base oil requirements.

“Mexico really seems to have taken off last week,” a supplier commented, while another one concurred, mentioning that June orders had started to come in.

A majority of refineries in the U.S. continued to run at reduced operating rates, and it was not clear when these rates would be increased, as inventories were still high, but participants did not expect any changes until at least July.

A number of rerefineries have also reduced run rates, or have shut down temporarily due to the lack of used oil that is utilized as feedstock for these operations.

On the naphthenic front, downward price pressure prevailed as availability was heard to be outpacing demand. However, the start of a turnaround at Calumet’s naphthenic base oils facilities in Princeton, Louisiana, may impact current supply levels, although the producer expects to meet commitments without any shipping delays, according to a company source. The turnaround was slated to begin towards the end of the week and be completed in two weeks.

The Valero naphthenic base oil plant in Three Rivers, Texas, was also heard to have been taken off-line in mid-May for a maintenance program, which was expected to last three to four weeks.

Aside from prospects of improving demand, steeper crude oil and feedstock values were also likely to support slightly more stable base oil prices, while margins have thinned.

Crude oil futures rose on Tuesday on expectations that OPEC+ members would agree to extend output cuts that have helped prop up prices, during a video conference anticipated to be held later this week. While Saudi Arabia and its allies support extending cuts further, it appears that the fact that prices have moved up may prompt others to change the current output quotas.

Gasoline demand has also improved, and even though levels are still well behind those registered a year ago, there appears to be a steady recovery. Nevertheless, total U.S. crude oil inventories remain close to record highs.

On Tuesday, June 2, July WTI futures settled at $36.81 per barrel on the CME/Nymex, and had closed $34.35/bbl on May 26.

Brent futures for August delivery closed at $39.57/bbl on the CME on June 2, from $36.17/bbl for July futures on May 26.

Light Louisiana Sweet crude wholesale spot prices settled at $36.74/bbl on June 1 and had closed at $35.24/bbl on May 22, according to the U.S. Energy Information Administration. (There was no trading last Monday, May 25, due to the Memorial Day holiday).

Low sulfur vacuum gas oil and high sulfur VGO were trading at July WTI plus $4.75/bbl (or $41.56/bbl) on Tuesday, June 2, and were hovering at $38.60/bbl on May 26, 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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