U.S. Base Oil Price Report


Two API Group II+ and Group III producers, Phillips 66 and SK Americas, communicated posted price increases this week. This was a slightly unusual development, given that in previous iterations, typically a Group II producer initiated the price adjustments.

Phillips 66 notified its customers late last week that the producer would be increasing its Group II+ and Group III Ultra-S Base Oil posted prices by 25 cents per gallon, effective Nov. 18.

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SK announced that it would be lifting the price of its Group II+ 70N grade by 20 cents/gal, its Group III 4 cSt base oil by 20 cents/gal and its 6 cSt and 8 cSt grades by 30 cents/gal, all with an effective date of Nov. 23.

The two producers had last increased prices by 15 cents/gal in the second half of September, along with a vast majority of base oil producers.

Sources also said that they had received increase notifications for imported base oils from Abu Dhabi National Oil Co. and Bahrain Petroleum Co.

The latest increase initiatives were expected to receive support from a tight supply and demand scenario and firm feedstock prices.

Most of the segments within the base oils paraffinic market were described as strained, with little to no spot availability reported by producers, who have had to turn down fresh orders, except for a couple of instances.

It was heard that about 20,000 metric tons of Group II grades had been concluded to India this week, to be lifted in December, which is likely to have exhausted most of the extra availability from United States suppliers. The Group II segment continued to be snug given production outages and reduced output caused by hurricanes and ensuing power outages along the U.S. Gulf Coast between late August and the end of October.

The Group I segment was similarly seeing a dearth of spot cargoes given healthy demand and lower availability from a domestic producer. Most refiners have also continued to run plants at reduced operating rates due to a drop in demand for fuels and other intermediates since the onset of the pandemic, exacerbating the supply situation for base oils.

While base stock demand traditionally declines in the weeks leading to the year-end holidays, this year may be different. Requirement levels may not show much change compared to October, which was deemed a good month. “Maybe 2020 has one more surprise for us, and demand will stay strong throughout December!” a supplier declared.

The Group III supply and demand balance has also narrowed in the U.S., as demand for these grades has increased, given improved activity in downstream automotive segments since June, although this could change if new coronavirus-related stay-at-home orders and business closings are implemented in various states due to a spike in coronavirus infections. This would limit the population’s mobility, particularly during the holiday season, and lead to a reduction in fuel consumption.

“Vehicle miles traveled in the U.S. declined last week and this has kept a lid on refining margins […] Total refined product demand is more than 6% behind year-ago levels,” the Tank Tiger Bulletin reported.

While there was positive news this week about the high efficacy rates of two vaccines developed by Pfizer and Moderna, they are yet to be approved and experts will have to decide how to distribute the vaccine and who should get vaccinated first, and this may take a while, different media outlets reported.

Fresh demand for Group III cuts continued in Latin America, since spot Group I and Group II supply from the U.S. has been scarce. Some lubricant manufacturers have resorted to blending Group I and III base oils as a substitute for Group II base oils, according to sources.

Group III imports to the U.S., mainly originating in South Korea and the Middle East, also dipped in August as shipments from South Korea dropped due to lackluster demand and reduced production rates at most facilities earlier in the year as a result of the pandemic. Given the lag between loading in South Korea and delivery in the U.S., it took some time for cargoes to arrive to meet the growing demand following the lifting of lockdowns in the U.S.

At the same time, import volumes from the Middle East increased in July and August as a large producer resumed production, following an extended turnaround, and tried to catch up with blossoming demand in the U.S.

There were also rumblings that a Group III producer in Canada has encountered some production issues this month and its spot availability has therefore dwindled, but this could not be confirmed with the producer directly.

Group I and II producer Calumet expects to have little spot availability over the next couple of months as it tries to build inventories ahead of a turnaround in the first quarter of next year. The producer has scheduled a turnaround at its base oils plant in Shreveport, Louisiana, for the month of February and plans to continue meeting contractual obligations during the shutdown.

On the naphthenic base oils front, demand was also characterized as steady, with inventories said to be fairly low given run rate reductions at some facilities.

Cross Oil had announced a price increase of 25 cents/gal for its light viscosity base oils and 15 cents/gal for its heavy-vis grades, which was originally expected to be implemented on Oct. 13. The producer later delayed its implementation, and will announce a new effective date on Friday this week. An increase in crude oil prices over the last few days may offer added support to the base oil price hike, sources said. Other naphthenic producers were heard to be evaluating market developments.

Crude oil futures rallied on Monday on news that a second vaccine had proven to be almost 95% effective in preventing COVID-19 infections, and news that OPEC+ may be delaying an output hike by 3-6 months, but prospects of a crude oil supply glut in the short term given the rising number of COVID-19 cases capped numbers.

On Tuesday, November 17, December WTI futures settled at $41.43 per barrel on the CME/Nymex and had closed at $41.36/bbl on Nov. 10.

Brent futures for January delivery settled at $43.75/bbl on the CME on Nov. 17, from $43.61/bbl on Nov. 10.

Light Louisiana Sweet crude wholesale spot prices settled at $42.34/bbl on Nov. 16 and had closed at $41.35/bbl on Nov. 9, 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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