U.S. Base Oil Price Report


Despite less than ideal market conditions as the U.S. economy has fallen into recession, protests demanding racial justice carry on and the coronavirus outbreak continues to rage in many states, there is mounting evidence that base oil demand has started to improve.

The World Bank diagnosed that the U.S. economy had entered a recession in February, ending a 128-month expansion, and the pandemic will make the global economy shrink by 5.2 percent this year, marking the deepest recession since World War II, the New York Times reported.

Countries that rely on global trade, tourism, commodity exports and external financing will be hardest hit. A rebound was predicted next year, but a longer than expected pandemic could change that.

Although nobody expected base oil and lubricant requirement levels to jump to pre-pandemic standards during the next few weeks, sellers have finally begun to see encouraging signs in that more blenders and end-users have started to place orders, including many in the export segment, both for paraffinic and naphthenic base oils.

“We have seen orders come in for June that we haven’t seen since early April,” a supplier noted. In fact, export price indications for API Group II base oils edged up by 5 to 10 cents/gal after languishing for several weeks, according to sources. Several cargoes were scheduled to be lifted from the U.S. Gulf this month for destinations in India, the Middle East and Africa.

Buying interest from Mexico and South America has also started to pick up, after almost three months of muted appetite. “Ports are re-opening after many weeks down. Some of the Mexican factories reopened June 1, so we’re getting railcars rolling for a late June to early July arrival,” a source said, while a second supplier concurred, “Our biggest decline was in Mexico. They basically stopped ordering in May. The good news is we have received some orders for June.”

While several countries in South America continue to be battered by the coronavirus, there has been some interest in U.S base stock cargoes from Brazil and Colombia.

However, suppliers tempered their expectations and commented that fundamentals were not likely to improve significantly until August. A number of sources said that demand for base oils and lubricants had been very disappointing in May, but it had improved so far in June, although it was “still way off.”

Group I demand had reportedly held steadier than its counterparts due to ongoing operations at manufacturing facilities producing essential goods. Group II base oils have been exposed to the steepest declines as production of these grades is the most prevalent in the U.S. While Group III prices also weakened over the last few months, their exposure to downward pressure was more limited as most volumes are imported and therefore, there is more control on how much product suppliers bring into the country.

With requirements still somewhat slow to take off, supply continued to outpace demand, but availability has begun to tighten as most U.S. refineries kept running plants at reduced rates. Buyers had entered the spring period with ample inventories because they had prepared for the busy production season, and it may take time for these stocks to be worked off.

Domestic base oil prices have stabilized, or have started to inch up on the back of improved demand and rising crude oil and vacuum gas oil values, with producers increasingly reluctant to grant discounts or temporary voluntary allowances. “In the U.S., [the market] has done a 180 degree turn and tightened up everywhere. We are still able to cover needs, but prices are rising,” a buyer acknowledged.

Finished lubricant demand has also shown an uptick, but suppliers said that it would be difficult to recoup any upward movements in base oil pricing.

Participants were also keeping an eye on Tropical Storm Cristobal, which made landfall in southeast Louisiana late on Sunday afternoon. The storm had weakened by Monday morning, but left three to five feet of flooding across the Louisiana coastline.

There were reports that ExxonMobil had brought back its 502,500 barrels per day refinery in Baton Rouge, La., to normal operating rates on June 8, following Cristobal. The refinery houses a 16,000 b/d Group I base oil plant. It could not be ascertained whether the storm had caused any base oil production disruptions to plants located on the U.S. Gulf Coast.

On the naphthenic front, most buyers appeared to be using up existing inventories and sticking to volumes under contract, while prices have steadied.

A planned turnaround at Calumet’s Princeton, Louisiana, facility and a shutdown at Valero’s Three Rivers, Texas, plant did not seem to have resulted in product shortages. 

Calumet took its base oil plant off-line late last week and was expected to restart it in two weeks. The company had prepared inventories to cover requirements during the outage and did not anticipate any shipment disruptions.

The Valero naphthenic base oil plant in Three Rivers, Texas, was also heard to have been taken off-line in mid-May due to feedstock supply issues, and was likely to be down for three to four weeks.

Other pale oil producers said they have not received additional product inquiries on account of the turnarounds.

Base oil producers lamented the fact that crude oil prices had strengthened, compressing margins, and placing upward pressure on base oils.

Crude oil futures ended lower on Monday as the extension of OPEC+ output cuts, which were agreed at a meeting last week, were not anticipated to stave off global oversupply. However, numbers climbed on Tuesday on expectations for a rebound in energy demand and more balanced conditions as much of U.S. production has been shut in.

On Tuesday, June 9, July WTI futures settled at $38.94 per barrel on the CME/Nymex, and had closed $36.81/bbl on June 2.

Brent futures for August delivery closed at $41.18/bbl on the CME on June 9, from $39.57/bbl on June 2.

Light Louisiana Sweet crude wholesale spot prices settled at $39.57/bbl on June 8 and had closed at $36.74/bbl on June 1, according to the Energy Information Administration.

Low sulfur vacuum gas oil and high sulfur VGO were trading at July WTI plus $4.75/bbl (or $43.69/bbl) on Tuesday, June 9, and were hovering at $41.56/bbl on June 2, 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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