U.S. Base Oil Price Report


Participants’ biggest concern continued to be the tight conditions affecting the market over the last several weeks. Base oil shortages have grown so severe that blenders have had to toggle between suppliers and purchase or borrow product from other lubricant manufacturers to keep operations running. A number of manufacturers have also reduced output or halted operations temporarily, waiting for conditions to improve.

The tight supply has kept the pressure on prices, with Motiva communicating a 30 cents-per-gallon posted price increase on all of its API Group II grades and 35 cents/gal on Group III grades this week, in addition to the 30 cents/gal hike for Group III cuts that the company implemented on May 11. At that time, the Group II grades had not been adjusted up. The fresh increases will go into effect on May 19. Market sources speculated that the increase was prompted by a need to catch up with other suppliers’ pricing and bring postings more in line with spot values.

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Certain additives and petrochemicals have been in short supply following the unplanned shutdown of numerous petrochemical plants in Texas, Louisiana and the Midwest during a severe winter storm in mid-February. Since then, the supply chain has been in disarray for a number of raw materials, including base stocks, sources noted.

Base oil production was indeed affected by the storm and at least two major Group I, Group II and Group III producers had been forced to shut down operations for a few days, leading to force majeure declarations and product allocations. Additionally, two Group I and II plants that were undergoing routine turnarounds had to extend their shutdowns because of damages caused by the storm.

While the base oil output situation has improved with plants resuming production, a number of producers were still monitoring inventories closely and were able to fulfill contract requirements only, which left little extra material for spot transactions. A few suppliers were also trying to catch up on orders and acknowledged that some shipments had been delayed.

Base oil buyers agreed that finding enough base oils had been challenging, particularly as far as the heavy viscosity grades were concerned. Within the Group I segment, bright stock continued to stand out as one of the most difficult cuts to locate. Two producers that recently restarted plants after a prolonged turnaround have ramped up rates and were striving to increase bright stock output, but did not expect much extra availability for a while. “Bright stock will probably stay short through July as everyone tries to replenish their inventory. Both the suppliers and buyers need to replenish,” a source explained.

Group II and Group III cuts were also tight, with very few spot volumes likely to become available in the next few weeks.

Aside from a lack of readily available base stocks, end-users also faced a supply deficit of additives, chemicals and steel drums for finished products. “The tightness in steel is leading to delays from 2-6 weeks to get orders filled,” a source noted. The scarcity of steel has been attributed to the imposition of tariffs during the previous administration and measures implemented during the height of the pandemic.

“Domestic steel mills that idled furnaces last year amid fears of a prolonged pandemic-induced economic downturn have been slow in ramping up production, despite a recovery in demand for cars and trucks, appliances, and other steel products,” Reuters reported. Steel that used to get delivered in eight weeks last year now takes 12-16 weeks, and logistical challenges, like container shortages, and thin overseas supply are keeping imports in check, the Reuters article added.

Additionally, base oil shipments have been affected by a lack of trucks and barges which were being used to transport fuels during the Colonial Pipeline shutdown last week. Barge traffic on the Mississippi River suffered disruptions near Memphis, Tennessee, last week when a crack was discovered in the Interstate 40 bridge that connects Tennessee and Arkansas. Traffic on the river has been restored, the U.S. Coast Guard said on May 14.

The extremely tight base oil supply situation was not expected to improve until late June or early July at the earliest, sources conjectured. Some segments will see relief slightly sooner, and this may result in more cargoes becoming available for export. For the time being, market such as Mexico, which imports large quantities of U.S. base oils, have been suffering from the lack of availability and the climbing price indications, although a few light-grade cargoes were heard to have moved there in the last couple of weeks.

On the other hand, buying interest in countries such as India seemed to be weakening due to the raging spread of the coronavirus. Brazil’s import volumes have also decreased given a lack of available U.S. cargoes and the effects of the pandemic.

Base oil spot prices have skyrocketed, and posted prices have increased four times since the beginning of the year – a rare occurrence in a market that in past years would see only four or five price adjustments in twelve months.

During the most recent round of posted price hikes, paraffinic producers lifted posted prices by 15 cents/gal, 30 cents/gal and 40 cents/gal between April 26 and May 11.

On the naphthenic base oils front, producers raised prices by 25, 30, 35 and 40 cents per gallon, depending on the product and the location, in early May.

Naphthenic base oil prices were also supported by a snug supply/demand scenario. While producers were trying to meet requirements in a timely manner, some customers reported shipment delays in this segment as well. The heavy grades were particularly tight, with demand from Latin America reported as robust as some buyers used the naphthenic heavy grades in lieu of paraffinic high-viscosity cuts.

The steeper base oil prices, together with other climbing costs such as raw materials, transportation and packaging ensued in additional price increase initiatives from lubricant, grease and finished products manufacturers, who were seeking markups of 12-15% for late May and early July implementation. These would be in addition to a previous round of 3%-15% increases that were applied in late April/early May.

In terms of base oil production, most plants were running well, although a majority were said to be operating below full capacity, which has been the case since the start of the pandemic.

Ergon had a slight delay in the restart process of its paraffinic refinery in Newell, West Virginia, after completing a maintenance turnaround that began on April 9. The turnaround schedule was extended approximately one week due to COVID-19 precautions and increased scope of work, with the refinery beginning its multistage restart process on May 5.

Motiva was heard to have had a brief shutdown of some units at its Port Arthur, Texas, refinery last week. Originally, media reports attributed the shutdown to the closure of the Colonial Pipeline, but sources later said that the outage had been caused by a power supply problem and had only affected fuel output. The company did not comment on the status of its operations.

High base oil prices were supported by firm crude oil numbers. Oil futures moved up on Tuesday, with Brent crude briefly hitting $70 per barrel for the first time since March, on expectations of a demand recovery prompted by reopenings of the European and U.S. economies, increasing unrest in the Middle East and declining confidence in the U.S. dollar. These conditions offered enough positive signs to offset concerns about spiking coronavirus cases and slow vaccination campaigns in Asia.

The gasoline supply crunch receded as more than 1,000 retail gasoline stations received supplies over the weekend, easing shortages from the Colonial Pipeline outage last week.

On Tuesday, May 18, June WTI futures settled at $65.49 per barrel on the CME/Nymex, and had closed at $65.28/bbl on May 11.

Brent futures for July delivery settled at $68.71/bbl on the CME on May 18, from $68.55/bbl on May 11.

Light Louisiana Sweet crude wholesale spot prices were hovering at $68.54/bbl on May 17 and had closed at $66.92/bbl on May 10, 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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