U.S. Base Oil Price Report


Base oil demand showed some ups and downs during the week, as several states renewed restrictions that impaired the population’s activities and mobility.

While suppliers reported a fairly good number of orders since the beginning of the month, they also admitted that buying interest had slowed down compared to June, when demand had experienced a strong uptick.

This peak was likely due to the reopening of businesses following stay-at-home measures, an increase in driving expected during the summer, and a rush to place orders ahead of the posted price increases implemented between June 15 and July 1. Buyers also stepped back into the market to replenish stocks, which they had been using up since March.

Paraffinic base oil suppliers implemented 15-16 cent-per-gallon posted price increases in June and July, while a naphthenic producer lifted prices by 20-25 cents/gal last week. Most discounts and temporary value adjustments or temporary allowances had been removed in late June, although a few large accounts continued to enjoy some of these price advantages.

Producers were heard to be trying to increase domestic market prices and removing further discounts this week, but may be facing some resistance.

Naphthenic spot prices have also moved up since early June – even though no further announcements have been made about price hikes – driven by steeper feedstock prices and tightening supply, inching up by about 5-15 cents/gal. The light-vis grades were described as snug, while the heavier grades were slightly more readily available, according to sources.

Renewed uncertainties linked to the implementation of measures to control the virus in several key U.S. states, including school and business closings and stay-at-home orders, have resulted in a subtle slowdown in the base oils market, as the use of personal vehicles was likely to be reduced, dragging down gasoline and lubricant consumption.

Even though U.S. liquid fuels consumption was expected to continue to rise in the second half of 2020, it will remain below pre-pandemic levels until August 2021, according to a new forecast from the Energy Information Administration. The EIA predicted that gasoline demand would average 8.3 million barrels per day, down 1 million barrels per day year-on-year, or a 10 percent decrease, OilPrice.com reported. Jet fuel demand will also be significantly down this year.

The downstream lubricant segments that have suffered the most since the start of the pandemic are the automotive, aviation and railroad sectors due to reduced mobility of the population, while agricultural and certain manufacturing applications that supply the essential services segments have shown steady activity, industry experts said.

On the export front, base oil requirements from Mexico continued to be described as steady. Mexico has imported large amounts of light viscosity grades from the United States over the last couple of years as base oil prices turn out to be lower than diesel due to local tax laws, and base stocks are therefore used in fuel blending. Prices at Brownsville, Texas, where large amounts of base oils change hands on their way to Mexico, were reported as steady, despite buyers’ efforts to achieve lower numbers.

While this side of the export business reflected steady activity, other segments such as exports to India and the Middle East have turned sluggish as markets there appeared well-supplied and presented challenges related to the COVID-19 pandemic. A record number of U.S. cargoes had moved to those regions in June, following a slump in April and May.

“Producers are showing again surpluses for export after not having much to offer for July,” a source noted. While many producers and rerefiners had trimmed operating rates in April in response to the demand destruction brought about by the pandemic, some had started to increase run rates over the last three weeks as product needs had edged up.

Some attention was also focused on developments on the upstream crude oil and feedstock fronts. Crude futures jumped on Tuesday, hitting four-month highs on positive news about vaccine trials and expectations that economic stimulus packages passed by the European Union and potentially in the U.S. would offset concerns about weakening oil consumption stemming from new COVID-19 spikes.

However, futures were trading within the narrow band of the past three weeks as the new lockdowns could derail a recovery in demand. While China has gradually been reopening more businesses, countries such as the United States to India continued to post record numbers of infections, with Spain and Australia, among others, dealing with renewed outbreaks.

On Tuesday, July 21, August WTI futures settled at $41.96 per barrel on the CME/Nymex, and had closed $40.29/bbl on July 14.

Brent futures for September delivery closed at $44.32/bbl on the CME on July 21, from $42.90/bbl on July 14.

Light Louisiana Sweet crude wholesale spot prices settled at $42.13/bbl on July 20 and had closed at $42.06/bbl on July 13, according to the Energy Information Administration.

Vacuum gas oil (VGO) was trading at August WTI plus $6.75/bbl (or $48.71/bbl) on July 21, compared with $46.04/bbl on July 14, 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.

Related Topics

Base Oil Reports    Market Topics