U.S. Base Oil Price Report

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Participants turned their attention once again to market developments, following a tumultuous week that featured a contentious United States presidential election and a sharp increase in coronavirus cases.

Additionally, yet another storm was forming in the Atlantic Ocean – Subtropical Storm Theta – on Monday night, making 2020 the most active hurricane season on record. No watches or warnings had been issued as Theta was expected to travel east and stay in open water before dissipating, according to the National Hurricane Center. Earlier this year, a number of hurricanes and storms had made landfall on the U.S. Gulf Coast, where several refineries and base oil plants are located, causing production disruptions.

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As a result, the base oils market remained very tight, and the lack of availability of spot cargoes continued to place upward pressure on spot indications, even as most suppliers were unable to entertain fresh product inquiries.

There was limited to no extra availability of base oils within the API Group I segment, given steady demand and ongoing reduced output rates since the first quarter, when the coronavirus pandemic first started to affect demand.

Base stock availability from Group I producer Paulsboro was heard to be snug, following the producer’s announcement last week that it was halting production at several of its New Jersey refinery fuel units. Base oil production was expected to continue at that location, but sources said that the producer appeared to have limited supply to offer, although it was still meeting all of its contractual obligations. This could not be confirmed with the producer directly.

The Group II segment also remained tight, but producers have been able to offer at least a couple of spot cargoes as most production has been restored, following hurricane-related shutdowns and reduced rates along the U.S. Gulf Coast.

A large Group II producer was heard to have concluded a 10,000 metric ton shipment of light grades to India slated to be lifted this week, allowing the supplier to attain a balanced position. Similar transactions were under negotiation with other suppliers, but it remained to be seen whether there were enough cargoes available to meet these requirements, sources said.

Producers were also in discussions for potential transactions involving Group I export cargoes, but limited availability thwarted the conclusion of additional deals, according to sources.

Domestic demand has also stayed healthy, despite predictions that it would weaken in November, with a number of participants asserting that October had surpassed all expectations in terms of orders. “We had our best month of the year in base oils last month, and November is looking pretty good,” a supplier commented. Other sellers agreed that a steady stream of orders had resulted in a very tight supply/demand scenario, with Group I suppliers enjoying additional interest in their base stocks as Group II availability has dwindled.

Mexican buyers still showed healthy appetite for base oils, but there was less interest in light-vis cuts for fuel blending as diesel can be imported at a lower price from the U.S. instead. There was still robust demand for the heavy-vis 600 cuts and bright stock, according to sources, as well as continued buying interest from Brazil for Group I and II supplies.

Light grades were also in high demand, but those U.S. suppliers that were able to squeeze out spot parcels appeared to favor sales into markets offering better returns such as India. Base oil prices have been rising steadily in India for the last several weeks, propelled by strong buying interest.

A large U.S. naphthenic producer that manufactures a bright stock grade was heard to have experienced some issues with output of this particular grade, and its spot prices have climbed, according to sources.

The naphthenic base oils front was similarly snug, with most producers able to place their production within the domestic market and also offer some cargoes for export to Asia and other destinations, although spot availability was also limited within this segment. Prices held firm, buoyed by the tight supply/demand balance and firm crude oil prices, which had slumped last week, but recovered some territory this week.

Rerefiners were also heard to have seen brisk requirements and were evaluating availability for the remaining weeks of the year.

There were heightened market concerns about the effects of the spread of the coronavirus, and the likelihood of renewed lockdowns, similar to those implemented earlier in the year. With the holidays approaching, public health experts recommended foregoing large family gatherings and celebrations, which could lead to a slump in fuel and lubricant consumption as people would limit their mobility at a time when travel typically increases.

On a more positive note, though, experts also suggested that if people still decided to travel during the Thanksgiving holiday, they should drive rather than take public transportation such as trains or airplanes to avoid infection, which could result in heightened demand for automotive fuels and lubricants.

At the same time, the slump in jet fuel consumption has been one of the reasons refiners continued to throttle back run rates, with refinery run rates averaging 75% in the U.S.

Many feared the bleak scenario seen in the first half of the year, when lockdowns in most countries – with the exception perhaps of China, since it had dealt with the pandemic earlier – had led to an unprecedented drop in crude oil values and in base oil prices. At this time, however, suppliers do not have high inventories because they have been running at trimmed rates for some time, and buyers have been carefully monitoring product needs.

The lockdowns seem to be mostly taking place in Europe for the time being, and they seem to be less generalized and more targeted on certain businesses and activities. Nevertheless, given the rapid rise in the number of cases in the U.S., new lockdowns and other measures were being imposed in some states, with others expected to follow soon.

Upstream, crude oil futures jumped by 10% on Monday on news that a COVID-19 vaccine had shown 90% efficacy, fueling hopes that the disease would be controlled soon and global economic activity would improve, leading to an increase in crude oil consumption. However, concerns still lingered, as the number of new cases and hospitalizations continued to grow.

On Tuesday, Nov. 10, December WTI futures settled at $41.36 per barrel on the CME/Nymex and the front month had closed at $37.66/bbl on Nov. 3.

Brent futures for January delivery closed at $43.61/bbl on the CME on Nov. 10, from $39.71/bbl on Nov. 3.

Light Louisiana Sweet crude wholesale spot prices settled at $41.35/bbl on Nov. 9 and had closed at $37.85/bbl on Nov. 2, 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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