U.S. Base Oil Price Report

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Base oil market participants marched into 2021 with an optimistic view that the rollout of coronavirus vaccines and eventual control of the pandemic would likely lead to an increase in fuel and lubricant demand as the population would start to venture out of their homes and resume driving and travel over the next few months.

However, the market was still very vulnerable due to the resurgence of infections and renewed lockdowns in many areas, not to mention many of the uncertainties affecting the country’s economic wellbeing.

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The dramatic drop in demand for gasoline, jet kerosene and distillates during most of 2020 prompted refiners to cut back run rates since the first quarter, which in turn resulted in reduced base oil output. Few producers have been able to increase production rates to full capacity, and this condition, coupled with a base oil demand revival since last June, led to a tight base oil supply and demand ratio.

While producers continued to focus on meeting contract commitments, spot barrels were limited, and this offered support to climbing spot price indications.

Paraffinic producers and rerefiners implemented posted price increases in early December, prompted by the prevailing market conditions, while naphthenic producers also adjusted prices up during the same month.

The tight fundamentals improved slightly in November, following the resumption of production at base oil plants along the U.S. Gulf Coast, which had been adversely impacted by hurricanes a few months earlier. A number of spot export shipments were concluded to destinations such as India, Mexico and Brazil. However, spot demand continued to outpace supply.

Domestic base stock requirements have been steady and although it was too early to tell whether January would be a strong month in terms of orders, sources said that the first signs pointed to fairly healthy consumption levels. However, some blenders had already stocked up in December, and throttled back their purchasing pace as sales in the downstream segments have slowed down, particularly in some areas such as the Southeast of the United States.

Nevertheless, some suppliers expected orders in lubricants, greases, additives and other finished products segments to be fairly brisk in the first part of the month, ahead of the implementation of price increases of 8%-15%, scheduled to go into effect in the second half of January and February. See separate story on finished lubricant price increases in this issue.

If base oil plants do not start to increase production, the snug supply and demand situation may be exacerbated by turnarounds scheduled in the U.S., as well as in Asia, during the first quarter of the new year, sources said.

At least two producers, HollyFrontier and Calumet, planned to take their base oil units off-line for maintenance, limiting spot availability of Group I and Group II grades. Two naphthenic base oil producers, San Joaquin Refining and Cross Oil, were also expected to complete turnarounds in February and March, respectively.

Additionally, a turnaround at a facility in South Korea in March triggered speculation that the company’s U.S. business partner might be shipping API Group II barrels to Asia to cover some of the product requirements in Asia, although this could not be confirmed.

Base oil prices also received support from rising crude oil values. Oil futures jumped on Tuesday, after a surprise move by Saudi Arabia, who proposed an oil supply cut of its own following an OPEC+ meeting that started on Monday.

The group’s members had agreed to lift oil production in February by 75,000 barrels per day over January levels, but Saudi Arabia announced after the meeting that it would voluntarily cut an additional 1 million barrels per day in February and March above its current quota, while OPEC’s allies – Russia and Kazakhstan – get to ramp up production. March’s production level will see an additional increase of 120,000 barrels per day over February levels, or 195,000 b/d over January levels, according to OilPrice.com.

On Tuesday, January 5, February 2021 WTI futures settled at $49.93 per barrel on the CME/Nymex, and had closed at $48/bbl on Dec. 29.

Brent futures for March delivery settled at $53.60/bbl on the CME on Jan. 5, from $51.09/bbl for February futures on Dec. 29.

Light Louisiana Sweet crude wholesale spot prices closed at $49.67/bbl on Jan. 4 and had closed at $49.50/bbl on Dec. 28, according to the Energy Information Administration.

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

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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