HollyFrontier restarted its Group I base oil plant and Calumet its Group I and II facilities in the first few days of April following planned turnarounds and were ramping up rates. The turnarounds had been complicated by structural damages brought about by a severe winter storm in mid-February, which had forced the two producers to extend the shutdowns for almost a month. While both producers were expected to meet their contract commitments – although one of the suppliers maintained a force majeure on bright stock production – they did not have any spot availability for the time being, and did not expect to be able to offer any spot cargoes until late May or June, according to sources.

Two U.S. Gulf Coast producers, ExxonMobil and Motiva, have restarted their plants and were running well following unexpected production disruptions during the freezing winter storm in February. Both producers had declared force majeure on base oil production and placed customers on allocation at the time. It could not be confirmed whether one of the suppliers, Motiva, had lifted its allocation, but there had been expectations that the measure would be lifted in early April.

Several producers in need of completing repairs caused by the storm were also dealing with disruptions in the supply chain and labor shortages due to coronavirus-related precautions. Certain equipment parts and raw materials needed for repairs were in high demand because many manufacturing plants along the Gulf Coast and in the Midwest had to replace burst pipes and electric supply equipment after the February storm. Shipments were also facing delays given a lack of available barge and trucks for deliveries.  

Even the most optimistic participants did not expect a noticeable improvement in base oil supply levels until the summer, particularly as finished lubricant manufacturers have started to pad inventories ahead of potential hurricane-related disruptions between June and December. They were taking as much product as possible under contract, leaving little for spot business. Producers said they continued to receive calls from customers looking for spot cargoes, but most suppliers were unable to offer any extra barrels after meeting contractual obligations.

A couple of Group II cargoes were heard to have been offered for export and fixed for shipment to India. Mexican buyers were still struggling to secure U.S. cargoes at reasonable prices, as spot numbers continued to climb due to the limited availability of most grades. Some light-grade parcels were heard to be moving to Mexico for fuel blending, but the number of shipments was small compared to last year.

Several refineries were still being run at trimmed operating rates due to lackluster motor and aviation fuel consumption, limiting feedstock supply for base stock production. With the coronavirus pandemic still presenting many uncertainties, it was difficult to predict when more feedstocks would become available. This situation, together with planned and unplanned base oil shutdowns and healthy demand since the third quarter of 2020, have led to the acute dearth of supplies.

The strained supply and demand conditions, together with firm feedstock costs, drove paraffinic and naphthenic base oil suppliers to implement price increases in late March and early April. These initiatives, in turn, triggered downstream increases for lubricant, additives, grease and other finished products. A majority of finished product manufacturers announced increases between 3% and 15% – depending on whether the suppliers had previously sought increases in the first half of April – to be implemented in late April and May.

Blenders were not only affected by the higher raw material costs and the lack of base oils, but of additives as well, and as a result a number of lubricant manufacturers reduced or halted production temporarily, and several placed customers on allocation.

Aside from the conditions mentioned above, a number of ongoing and upcoming base oil turnarounds continued to affect base oil availability.

Ergon’s paraffinic Group I and Group II refinery in Newell, West Virginia, began a 30-day turnaround on April 9. The company hoped to manage product inventories so as to minimize supply disruptions during the turnaround period and startup.

Market sources also said that Paulsboro had scheduled a 10-day turnaround at its Group I unit in Paulsboro, New Jersey, in mid-April.

Vertex Energy was expected have a brief shutdown at its plant in Ohio sometime in the second or third quarter of the year.

There were also turnarounds taking place at large facilities in Europe and Asia, which further complicated trade between regions, particularly for Group I and III base oils. In Europe, a major producer was heard to have implemented significant increases of $200-250 per metric ton for its Group I and Group II base oils, reflecting the extremely strained conditions present in that region as well.

Group III spot volumes were limited within the U.S., as most of the supply is imported from Asia and the Middle East – where the pandemic was also wreaking havoc – and there were few alternatives to use in downstream applications, because polyalphaolefin (PAO) prices were considered too high to replace the Group III grades.

On the naphthenic base oils front, recent planned and unplanned turnarounds, reduced run rates and steady demand have also resulted in limited spot availability and rising prices. Suppliers were focusing on meeting as much contractual demand as possible, but some delivery delays were also noted in this segment.

Naphthenic base oil producers implemented increases in late March and early April and continued to monitor market conditions closely in case further adjustments were necessary.

Upstream, crude oil futures had firmed over the week on expectations of improved demand on the back of COVID-19 vaccination campaigns in many countries. However, analysts turned cautious and values dipped on Tuesday on a surprise crude build in the U.S. and concerns about the rise of coronavirus cases in Germany, France, India and Japan which could lead to a slump in oil demand.

On Tuesday, April 20, May WTI futures settled at $62.44 per barrel on the CME/Nymex, and had closed at $60.18/bbl on April 13.

Brent futures for June delivery settled at $66.57/bbl on the CME on April 20, from $63.67/bbl on April 13.

Light Louisiana Sweet crude wholesale spot prices were hovering at $65.43/bbl on April 19 and had closed at $61.55/bbl on April 12, 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.