U.S. Base Oil Price Report


The summer doldrums were setting in over the base oils market, although they appeared to be of a different nature than in years past, as uncertainties related to the coronavirus pandemic persisted. Meanwhile, a number of producers hoped to increase posted prices.

Typically, base stock buying slows down after a few weeks of brisk activity ahead of the busy summer driving season, when lubricant producers prepare inventories to meet increased demand. This year, June and July saw an upswing in base oil orders, but it was thought to have been caused by a reopening of businesses and an easing of pandemic-related lockdowns, and not necessarily by summer travel.

Following the reopenings, many people started to drive again and get the oil changed in their cars, which helped improve demand for fuels and lubricants. Aside from the automotive industry, suppliers also saw fairly steady buying interest coming from those sectors that supply the essential services and agricultural segment, and from freight transportation.

However, demand has stabilized and the upswing seems to be slowing down, and participants questioned whether the increase in coronavirus infections in many states, together with the arrival of the fall and the flu season, would deepen the demand decline that has already started to manifest itself.

More optimistic market players commented that many segments of the economy were actually showing an improvement, and this would eventually lead to increased consumption of fuels and lubricants. A number of suppliers acknowledged that August was likely to be weaker in terms of sales than June and July, but remained hopeful that the drop would not be significant.

In terms of base oil pricing, there have not been any additional posted price increase announcements on the paraffinic side, following ExxonMobil‘s, Paulsboro‘s and Avista Oil’s initiatives, which were prompted by firm feedstock prices, thinning margins and tightening base oil availability.

According to reports, ExxonMobil implemented increases of 15, 25 and 30 cents per gallon on its API Group I, II and II+ grades on Aug. 10. Whether the increase has been achieved in its entirety was difficult to ascertain.

Paulsboro communicated that the company would raise its Group I light neutrals by 15 cents/gal, its heavy neutrals by 25 cents/gal and its bright stock by 30 cents/gal, effective August 13.

The balance of the producers were heard to be evaluating market conditions to decide whether to adjust prices, but were concerned that an increase would stifle demand, which was already deemed somewhat tenuous.

The Group I and II supply overhang seen in the second quarter had been fairly well managed given export opportunities to Mexico, India, Brazil and the Middle East in June, July and early August, together with reduced operating rates at base oil facilities.

A key Group I producer was heard to be sold out of spot availability for the time being, while another major Group II producer was also able to place large quantities into the spot market.

While buying appetite at some of these destinations appeared to have dwindled, several U.S. cargoes totaling almost 50,000 metric tons were reported to have been scheduled for shipment to India in late July and August, according to sources.

Mexico was also dealing with its own daunting version of the pandemic, and the growing number of new cases and deaths was anticipated to place a damper on the country’s economic performance, just as it has in the U.S. While there was still fairly steady movement of light-viscosity grades to Mexico, the rhythm seemed to slow and remained below pre-pandemic levels.

Disruptions on the Gulf Intercoastal Waterway caused by Hurricane Hanna in late July continue to affect barge transportation of base oils from the U.S. Gulf to Brownsville, Texas – a crossroads for the movement of U.S. products to Mexico, sources noted. However, ample inventories in Brownsville allowed sellers to work existing capacity down before fresh cargoes can be delivered.

The Group III segment was described as balanced, with imports having been scaled back to respond to a drop in domestic demand in the U.S. It was not clear whether a turnaround at a Group II/III plant in South Korea starting in late August would have any impact on availability in the U.S.

In rerefining circles, Avista Oil increased the price of its Group II+ grade by 15 cents/gal on August 3.

Rerefiners have either restarted idled plants, or increased production rates after an interstice of reduced output due to the lack of used motor oil utilized as feedstock during the peak of the lockdown period.

On the naphthenic side, recent price hikes of 20-25 cents/gal appeared to have been successfully implemented, with a balanced-to-tight market situation and high feedstock prices supporting the initiatives.

Upstream, crude oil futures rallied on Monday, while the U.S. dollar continued to drift lower. The upward momentum persisted on Tuesday on hopes of a slowdown in coronavirus transmission in the United States. Futures also received a boost from comments by Saudi Aramco that oil demand in Asia had climbed back to pre-pandemic levels.

At the same time, the U.S. rig count fell again and the oilfield services sector cut 9,344 jobs in July, a sharp increase in job losses from a month earlier, OilPrice.com reported.

On Tuesday, Aug. 11, September WTI futures settled at $41.61 per barrel on the CME/Nymex, and had closed $41.70/bbl on Aug. 4.

Brent futures for October delivery closed at $44.50/bbl on the CME on Aug. 11, from $44.43/bbl on Aug. 4.

Light Louisiana Sweet crude wholesale spot prices settled at $43.64/bbl on Aug. 10 and had closed at $42.48/bbl on Aug. 3, according to the Energy Information Administration.

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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