U.S. Base Oil Price Report


In a somewhat startling move, Motiva communicated a posted price decrease this week, thought to be driven by plunging crude oil and feedstock prices and the potential impact on supply and demand of the coronavirus outbreak.

According to reports, Motiva will be decreasing postings for its API Group II and III base oils by 40 cents per gallon, effective March 1.

While it was not completely unexpected that the producer would decide to lower prices, given the changing market fundamentals and the possibility of a product oversupply caused by the effects of the spreading coronavirus, it did catch some players by surprise because the producer had spearheaded an increase slightly over a month ago.

However, the decrease also reflects how quickly market conditions can change and how promptly producers have to respond to these fluctuations.

In mid-January, Motiva had raised all of its Group II and III base oils by 30 cents/gal, and this initiative was followed by a vast majority of base oil suppliers, who implemented hikes between 20 and 30 cents/gal at that time.

Participants mentioned the possibility that markets outside of Asia would see an increase in supply offers as Chinese demand has decreased significantly due to the virus outbreak. Regular Group II and III suppliers into China such as South Korean and Middle Eastern producers would likely be forced to look for alternative outlets for their base stocks.

Indeed, there were rumblings that a 10,000 metric ton cargo of Group II grades of Asian origin was offered for prompt loading at attractive prices of between $2.18 and $2.24 per gallon (unconfirmed) to potential U.S. receivers, and more of these parcels were expected to surface in the next couple of weeks. The emergence of competitively-priced cargoes from Asia, the Middle East and Europe was likely another of the reasons for the increase introduced by Motiva, sources speculated.

Market participants who attended the ICIS World Base Oils Conference in London last week said that there were fewer participants than in previous years due to concerns over the spread of the coronavirus. This was just another small sign that the outbreak has started to affect the base oil business, not only in China, but in other regions as well.

Another possible factor to be considered was the expectation that additional Group II products would become available in the U.S. once the Excel Paralubes plant in Lake Charles, Louisiana, restarts at the end of the month, following a maintenance program. Buyer sources said that they had not encountered any problems procuring all the Group II base oils they needed during the month of February.

Meanwhile, the effects of the Covid-19 (as the coronavirus is officially known) outbreak within the North American market have so far been fairly mild, and limited mostly to businesses that deal directly with China. “Minimal impact regarding coronavirus – Ive only heard a few mentions from our customers, and they are related to exporting finished products to China,” a source said.

However, U.S. suppliers were bracing for increased downward pressure on pricing if Middle East and Asian material typically slated for Asian destinations becomes available at competitive spot prices.

Opinions about current demand levels were mixed. “Demand is somewhat flat given the impact of the coronavirus,” a lubricant supplier noted, but there were those who have seen an increase in buying appetite, both for base oils, as well as finished lubricants as consumers pad inventories ahead of the spring season.

“Id say that demand has definitely come back earlier this year than most, however, maybe were not quite in full-swing spring buying yet,” a source remarked. “Sales for February have been very robust,” a second supplier noted.

Sellers also said that buyers’ inventories have been depleted since the end of the year as participants were delaying purchases as long as possible, waiting for a clearer picture of future demand, and they were now ready to start replenishing stocks. This also meant that business in late March might start to trail off.

Additionally, many finished lubricant manufacturers received orders earlier than usual because customers were hoping to beat the price increases in February and March.

Buying interest from Mexico also remained strong, particularly for low-viscosity grades, and availability of U.S. Group I base oils was snug as low-vis volumes of Group II have tightened, and Group I sellers were filling some of the supply gaps.

On the naphthenic side, there were expectations that spot supply would tighten as Ergon prepares to shut down its plant in Vicksburg, Mississippi, for a month-long turnaround, starting on March 5. The company was ostensibly limiting its spot sales to be able to build inventory and cover contract demand during the outage. However, suppliers conceded that there was no real concern among buyers of a potential product shortage, particularly given that San Joaquin Refining has also restarted its refinery in Bakersfield, California, following a routine turnaround this month.

Upstream, crude oil futures were substantially lower on Monday as Covid-19 cases and deaths outside of China multiplied, with more travel restrictions imposed. Futures were trending down on Tuesday as well, but regained some territory as the American Petroleum Institute estimated a smaller-than-anticipated crude oil inventory build.

Analysts were also keeping an eye on OPEC+ as the group has not announced more output cuts due to the reluctance of Russia to agree to the curbs.

On Tuesday, Feb. 25, WTI futures settled at $49.40 per barrel on the CME/Nymex, and had closed at $52.05/bbl on Feb. 18.

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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