U.S. Base Oil Price Report

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The United States presidential election and the resurgence of coronavirus infections resulted in muffled activity in the base oils market this week. The crude oil segment already reflected the first aftershocks of new COVID-19-related lockdowns and reduced demand, with futures falling to five-month lows and prompting refinery run cuts, and similar effects anticipated for base oils further down the road.

The general elections on Tuesday and uncertainties about the socio-economic welfare of the country on the back of renewed restrictions captivated much of participants’ attention in the U.S., and led to reduced business during the week, sources said. The slowdown was not completely negative, they added, as it offered a bit of a respite to strained market conditions, given that supply remained very tight and producers were mostly able to focus on contractual obligations, but had to turn down spot opportunities due to a lack of availability.

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The current conditions have led to rising spot prices for most base oil grades, while fuel and other oil products have weakened. Base oil margins have almost doubled compared to levels at the same time last year as buyers compete to secure cargoes.

The API Group I segment was expected to see little change in terms of supply, because most refiners were running units at trimmed rates, and were unable to fulfill all inquiries as demand stayed healthy.

A Group I refiner announced that it would be idling refinery operations due to weak market economics. PBF Energy communicated on Oct. 29 that the company would be halting production at several of its fuel production units at its refinery in Paulsboro, New Jersey, due to recent demand destruction, but would preserve base oil and asphalt output at the site. There was speculation that the base oil operations would receive additional feedstocks from the company’s Delaware City refinery, but details could not be confirmed with the producer directly.

The Group II segment was similarly impacted by reduced operating rates since earlier in the year, following the imposition of lockdowns, and was additionally affected by more recent weather-related output disruptions. Several producers, including Motiva, ExxonMobil and Excel Paralubes, were forced to either lower operating rates or shut down production ahead of Hurricane Laura in late August, and again on the eve of Hurricane Delta in October.

Last week, port operations along the Louisiana and Mississippi coast were disrupted by Hurricane Zeta, which made landfall on Oct. 28. Although thousands of households were left without power, no refinery operations were heard to have been affected by the storm.

The Excel Paralubes Group II plant near Lake Charles, Louisiana, suffered an unplanned shutdown following Hurricane Laura mostly due to damage to the power grid in the area where the plant is located, but was heard to have restarted and was ramping up rates, according to sources. This could not be confirmed, as the producer does not disclose information about its plant operations.

Additionally, demand for Group II from other regions such as Europe and Latin America continued to strengthen, given that countries were implementing more stringent automotive emissions and fuel consumption regulations, requiring more high-performance base oils for lubricant formulations.

However, appetite for Group I cuts for industrial applications and heavy-duty motor oil from some of countries, such as Brazil and Mexico – where local production has been erratic or reduced over an extended period – have also been healthy and placed additional pressure on U.S. availabilities.

The Group III supply and demand balance also remained snug, with a producer noting that it was still trying to catch up with requirements as they had risen quite rapidly following the lifting of lockdowns in June. This segment was also likely to be somewhat affected by the typical year-end slowdown and fresh COVID-19 restrictions.

There were reports that a producer in Canada experienced a setback with its Group III production due to feedstock issues, but these only affected Group III output. No further details were forthcoming at the time of writing.

On the naphthenic base oils front, demand was characterized as steady, with the lighter grades enjoying particularly strong buying interest. The tight fundamentals on the paraffinic side have led some blenders to use naphthenic cuts whenever substitution was an option.

While prices were exposed to upward pressure from the demand perspective, naphthenic suppliers said that crude oil prices, which have a more direct effect on pale oils, have been fairly stable for several months and offered less of a justification for steeper base stock prices. No additional price initiatives have emerged so far, following Cross Oil’s increase in late October.

November may offer a slightly different scenario for both paraffinic and naphthenic base oils, since buyers typically start to use up existing stocks in order to avoid tax repercussions, and producers also control inventories more closely. Additionally, many consumers had stocked up earlier in September to beat increases and were likely to have enough supply to get them through the end of the year. Rerefiners were also anticipated to build some spot availability in November and December.

Upstream, crude oil futures showed a rebound ahead of the presidential elections in the U.S., despite the new round of lockdowns implemented in some states and in Europe, which could jeopardize global crude oil demand.

On Tuesday, November 3, December WTI futures settled at $37.66 per barrel on the CME/Nymex and the front month had closed at $39.57/bbl on Oct. 27.

Brent futures for January delivery closed at $39.71/bbl on the CME on Nov. 3, from $41.20/bbl for December futures on Oct. 27.

Light Louisiana Sweet crude wholesale spot prices settled at $37.85/bbl on Nov. 2 and had closed at $39.99/bbl on Oct. 26, 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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