U.S. Base Oil Price Report

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Chevron announced a posted price increase this week, the producer’s second initiative in a month. The company had last marked up prices on April 27, with other producers similarly increasing prices at that time. Chevron’s announcement was quickly followed by similar communications from Excel Paralubes, Phillips 66 and ExxonMobil.

The staccato of price announcements heard since the beginning of the year – with five rounds of increases so far and prices at all-time highs – reflects the persistently tight supply and demand conditions and firm production costs, including those of crude oil and raw materials that are currently impacting the market.

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Chevron communicated that the company would be increasing its API Group II prices on May 26 due to current fundamentals. The producer’s Group II 100R grade will be increased by 20 cents per gallon, and its 220R and 600R grades by 30 cents per gallon.

Excel Paralubes informed customers that the company would be increasing its Group II Pure Performance posted prices by 30 cents/gal, effective May 28.

Phillips 66 also communicated a 30 cent/gal increase on its Group II+ and Group III Ultra-S base oils, with an effective date of May 28.

According to reports, ExxonMobil will be increasing its Group I bright stock and its Group II+ EHC45 grade by 40 cents/gal, and its Group I 600N and Group II EHC65 by 30 cents/gal. The increases will go into effect on June 1. There will be no changes to the Group I light and mid-viscosity grades.

Aside from the obvious domestic market situation which prompted the initiatives, global disruptions also seemed to fuel the increase decisions. Base oil supply continues to be tight in all regions. For example, it was heard that a major United States refiner with production facilities in Singapore has placed customers there on 80% allocation for the months of June and July, and this may affect its buyers all over the world, sources speculated. The allocation plan could not be confirmed with the producer directly.

A previous round of increases seemed to have been complete on May 19, when Motiva lifted its Group II grades by 30 cents/gal and its Group III grades by 35 cents/gal, in addition to the 30 cents/gal hike on Group III cuts that the company had implemented on May 11. A vast majority of paraffinic base oil producers had marked up 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 had lifted prices by 25, 30, 35 and 40 cents per gallon, depending on the product and the location, in early May as well.

Base oil buyers reiterated that supply was still very strained, with availability of the mid- and heavy-viscosity grades particularly critical. A majority of customers were taking as much product as possible under contract and there was very little product left for spot business. “Spot avails are non-existent, except maybe for the very light grades like 70N,” a source emphasized, and another source noted that the light vis inventories “were starting to recover.”

As mentioned in recent weeks, Group I bright stock remained the most elusive cut of all, with participants finding few substitutes, a very limited number of producers offering this grade, and prices shooting up. “Bright stock won’t loosen until August,” a source predicted.

Given the lack of surplus base stocks, U.S. export business has been more limited, with only a handful of cargoes moving to India, Mexico, Brazil, Colombia and Europe. Most of these shipments consisted of light grades, according to sources. Spot prices have also surged, and this was seen as another reason for the steady rise in postings. The higher prices also discouraged the completion of transactions into Mexico, as prices for U.S. product were deemed too steep for base oils used in fuel blending.

Downstream, demand for finished lubricants and other products remained healthy, which meant that manufacturers were very keen on getting enough base oils and other raw materials to keep operations running at close to full rates. However, not only were base stocks difficult to source, but so were additives.

Additives and other chemicals have been in short supply since several petrochemical and base oil plants were knocked off line during a devastating winter storm in mid-February. A lack of API Group III base oils and problems with additives supply were affecting the automotive lubricant industry in particular, sources noted.

The challenging raw materials supply situation was exacerbated by a shortage of qualified truck drivers to complete deliveries. The scarcity of truck operators was not only affecting base oils, but also gasoline transported from refineries to service stations, and this problem was expected to continue into the summer, sources said.

The shortfall of qualified professional truck drivers was attributed to employees leaving the industry and searching for jobs that offer better pay, benefits and working conditions, according to media reports. It was also noted that it appeared to be an international phenomenon, as several other countries have been affected by the same issue. An international supply chain group cited recruiting challenges such as an aging workforce, a lack of safe and secure truck parking, and struggles to attract youth and women alike, Trucknews.com reported back in March.

The pandemic made matters worse, as it was difficult to recruit and train new drivers. On top of the truck driver shortage, demand has risen for food deliveries, online shopping, and distribution of COVID vaccines and PPE, placing added pressure on the supply chain, abcnews.com explained.

Aside from the logistics issues, downstream segments were dealing with the recurrent base oil price increases. This forced lubricant, additive, grease and other finished products manufacturers to implement several rounds of increases as well, with the latest initiative calling for a 12%-15% markup in late May and early June. This would be in addition to a previous round of 3%-15% increases that were applied in late April into early May. Given the fresh round of base oil increases for late May and early June implementation, downstream segments continued to be exposed to upward pressure.

Base oils continued to be supported by firm crude oil and feedstock prices. Oil futures slipped late last week, but hovered near one-week highs after jumping more than 3% on Monday on expectations of improved demand following the lifting of pandemic-related restrictions and the approach of the summer driving season.

A prompt return of oil exporter Iran to international crude markets appeared less of a concern this week. The supply from Iran would be on top of extra barrels already expected from OPEC and allies in coming months. Indirect negotiations between the United States and Iran were due to resume in Vienna, Austria, later this week, but the discussions were anticipated to be protracted as Iran did not appear willing to comply with its nuclear commitments, delaying the lifting of sanctions.

On Tuesday, May 25, July WTI futures settled at $66.07 per barrel on the CME/Nymex, and had closed at $65.49/bbl for June futures on May 18.

Brent futures for July delivery settled at $68.65/bbl on the CME on May 25, from $68.71/bbl on May 18.

Light Louisiana Sweet crude wholesale spot prices were hovering at $68.23/bbl on May 24 and had closed at $68.54/bbl on May 17, 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.