U.S. Base Oil Price Report

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As the turbulent year 2020 comes to an end, base oil industry participants reassessed conditions and started to plan for the new year, hoping for fewer uncertainties, stronger fundamentals and a robust market recovery.

Despite the coronavirus pandemic having unsettled most aspects of life – claiming thousands of lives and disrupting business and travel, among other things – several accomplishments were achieved in the world throughout the year, such as the introduction of several COVID-19 vaccines, the expansion in electric vehicle applications, and the implementation of more environmentally friendly regulations for marine fuels, through the IMO 2020 initiative.

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NASA’s crewed launches to space this year, thanks to the organization’s collaboration with commercial and international partners, have led many to wonder whether space might be the next frontier for the lubricant and grease industry as more commercial space flights might be on the horizon.

In terms of base oils, the market is ending the year displaying fairly stable conditions, with supply described as tight and demand as steady, following the implementation of price increases on paraffinic and naphthenic oils.

Supply and demand were anticipated to remain balanced to tight as several refineries continued to run at reduced rates, given recent drops in fuel and distillates consumption.

On the finished lubricants, greases and additives front, manufacturers hoped to implement 8%-15% price increases in January on the back of rising raw material, production and transportation costs.

Base oil demand saw an uptick in December ahead of the implementation of some of the hikes. “Price increases caused the normal rush to ship product prior to the increase dates,” a source noted, adding that requirements may soften during the first two weeks in January as is usually the case after the year-end holidays, and this year in particular, they may weaken even more due to the effects of the pandemic. Requirements usually pick up in late February, ahead of the busy spring lubricant production season.

However, some suppliers hoped that base oil consumption would remain firm into next year. “It’s hard to say for sure, [but] I don’t see signs of it falling off,” a source commented.

Not only was domestic demand fairly healthy, but inquiries for export continued to pour in, especially from India, Brazil and Mexico, but United States barrels for spot transactions were difficult to locate. Around 20,000 metric tons of Group II light grades were heard to be loading in the U.S. for shipment to India in January, and several cargoes were also expected to be shipped to Mexico.

Participants were also keeping an eye on reports that import regulations for crude oil, fuel and other refined products would tighten in Mexico in 2021. Additional documentation about contract terms, final application for the products and proof of storage were expected to be covered in the new regulations, placing additional pressure on importers and prices. One question was whether base oils would be included, as the light grades are often used for fuel blending. The latest draft of the regulations did not include base oils and lubricants and showed less stringent requirements for imports and exports of refined products. The new rules were expected to go into effect at the end of December.

Most participants hoped for a clearer picture to emerge in the next few weeks. “Mexico is still an unknown moving forward. It is too early to tell about this tax/registration situation,” a source said.

A couple of paraffinic plant turnarounds scheduled for the first few months of the year may strain supply of base oils further and limit the availability of product for spot business. HollyFrontier and Calumet were heard to be preparing inventories to cover contractual obligations during their turnaround in the first quarter and having to turn down spot opportunities as a result.

Two naphthenic producers, San Joaquin Refining and Cross Oil, were understood to have planned turnarounds in February and March as well, which would likely lead to a further tightening of supply. Unlike previous years, naphthenic producers reported snug availability and a reduced need to clear inventories and to offer discounts at the end of the year.

Upstream, crude oil futures were higher on Tuesday, although trading remained thin ahead of the New Year’s holiday. Prices strengthened after U.S. President Donald Trump signed a bill containing $900 billion in pandemic relief. While the approval raised hopes for stronger oil consumption in 2021, rising worldwide coronavirus infections, and related travel curbs were weighing on the short-term outlook, WorldOil.com reported.

A brief rally in crude oil had petered out on Monday as analysts focused on expectations of added supply from OPEC+. Russia’s deputy prime minister said the nation plans to support a further gradual increase in OPEC+ production at the next meeting in January.

On Tuesday, Dec. 29, February 2021 WTI futures settled at $48.00 per barrel on the CME/Nymex, and had closed at $47.02/bbl on Dec. 22.

Brent futures for Feb. delivery settled at $51.09/bbl on the CME on Dec. 29, from $50.08/bbl on Dec. 22.

Light Louisiana Sweet crude wholesale spot prices closed at $49.50/bbl on Dec. 28 and had closed at $49.69/bbl on Dec. 21, according to the Energy Information Administration.

Lubes’n’Greases would like to wish you a Peaceful and Happy New Year!

Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.

Posted Paraffinic Base Oil Prices

December 30, 2020

(Prices are FOB basis, in U.S. dollars per gallon and U.S. dollars per metric ton).

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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