U.S. Base Oil Price Report

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Cross Oil and Calumet will be increasing naphthenic base oil prices on the heels of a similar initiative recently proposed by paraffinic producers. Exceptionally tight supply, robust demand, logistics issues and firm crude oil prices supported the latest price adjustments.

Early this week, Cross Oil notified customers that the company would be raising all naphthenic prices by 30 cents per gallon, effective July 5. The company also explained that the increase was driven by “market factors including increases in crude oil and in-bound transportation.” Cross Oil also said that it was limiting orders to contract quantities during the transitional period and may limit sales based on available inventory.

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This described the situation that most paraffinic and naphthenic suppliers were in – a majority of them focused on meeting contractual obligations, and were left with little to no availability for spot shipments. A number of suppliers have kept customers on allocation since February, when a freezing winter storm had disrupted production in a large portion of the United States. A majority of players have also been unable to build emergency stocks ahead of the hurricane season, which started on June 1.

Calumet will also be lifting prices on all naphthenic grades by 30 cents/gal, with an effective date of July 6.

Other naphthenic producers have either implemented similar markups, or were monitoring conditions to make a decision about pricing going forward. The 4th of July holiday observed on July 5 may delay some of these decisions.

The snug supply situation in the naphthenic base oils segment was compounded by recent turnarounds and an unplanned outage at the Valero refinery in Three Rivers, Texas, following a fire on June 6. The refinery houses a 2,400 barrels per day naphthenic base oils unit, according to Lubes’n’Greases Guide to Global Base Oil Refining.

The damage to the fuels unit forced the Valero refinery complex to shut down and a restart was not expected until mid July. The producer also declared force majeure on naphthenic base oil output, which had already been previously affected by lingering production issues stemming from damages incurred during the winter storm in February.

On the paraffinic side, a vast majority of producers and rerefiners have implemented a sixth round of posted price increases since the beginning of the year, with markups ranging 15 to 55 cents/gal, depending on the grade and whether the supplier had participated in all the previous rounds of price hikes.

SK Americas will raise its API Group II+ and Group III posted prices by 35 cents/gal, effective July 1. SK’s prices will be adjusted on the Price Table this week as it is when the increases go into effect.

Participants reiterated that supply of all base oils was tight, with the heavy grades in both the API Group I and II categories heard to be especially scant beyond those supplies allotted to contract shipments. Bright stock continued to be the “belle of the ball” as many buyers were intent on finding supplies, but availability remained elusive.

Domestic supply levels of Group I base oils were thin due to extended turnarounds in the first and second quarter. Group II facilities had suffered serious setbacks in February during the winter storm as well, and a number of suppliers have already notified customers that they would be unable to offer spot supplies until the end of the year. Some orders placed this month might not be delivered until August or September, sources commented, particularly in the case of bright stock and the Group III 4 centiStoke grade.

Supplies of Group III base oils and high viscosity grades have been described as strained over the last couple of weeks. Recent and ongoing plant turnarounds at Group III facilities in Asia and Europe, together with healthy demand for these grades as a substitute for Group II cuts were mentioned as factors impacting availability.

At the same time, a slight oversupply of light viscosity grades in Asia prompted suppliers to look for takers beyond the region and a number of light grade parcels were heard to have been concluded from South Korea to Brownsville, Texas, likely to then move on to Mexico, where consumers use base oils for fuel blending. Discussions also centered on possible shipments to other South American destinations such as Colombia.

The supply shortages and climbing base oil prices prompted additional downstream lubricant, greases, additives and other manufacturers to communicate price increases of between 5% and 18% for implementation in late July and August. These follow several rounds of price increases during the previous months.

The limited supply of base oils and additives has also triggered reduced production rates or brief shutdowns at blending facilities, and forced manufacturers to place customers on allocation.

Many suppliers of base oils and lubricants were also facing difficulties with logistics and transportation. A lack of truck drivers and railcars impacted delivery times on the domestic side and shipments to Mexico, and a dearth of containers and vessel space affected international shipments. “Chaotic is an understatement,” was how a source characterized the current shipping situation.

Reduced manufacturing rates, employee absences and social distance restrictions during the peak of the pandemic continued to have an impact on supplies of automotive and appliance components such as chips, which in turn resulted in production and delivery delays and also led to reduced lubricant, grease and metal working fluids demand, sources noted.

These disruptions may be exacerbated in pockets of the manufacturing industry in those areas where the Delta variant of the coronavirus has started to spread and vaccination rates may be low. The World Health Organization said last week that it has been detected in at least 92 countries.

A growing number of countries were forced to reimpose lockdowns and other public health restrictions, raising fears that the more contagious variant was hampering global efforts to contain the pandemic, the Washington Post reported.

The new curbs on travel and daily life stretched from Australia and Bangladesh to Taiwan and Germany, where authorities set new limits on travelers and the population’s activities. In the U.S., authorities in some counties such as Los Angeles have reintroduced mask mandates to stave off the spread of the Delta variant as well.

Another factor that was affecting base oil pricing was firm crude oil and feedstock values. Crude oil futures steadied on Tuesday after hovering near three-year highs as the market held on to hopes of a demand recovery, despite fresh concerns about the pandemic and new outbreaks of the highly contagious Delta variant. Analysts were also waiting for news about global production levels following an OPEC+ meeting, which was scheduled for July 1 and was expected to focus on a potential output increase.

West Texas Intermediate August futures settled at $72.98/barrel on June 29, from $73.06/bbl for July futures on June 22.

Brent futures for August delivery settled at $74.76/bbl on the CME on June 29, from $74.81/bbl on June 22.

Light Louisiana Sweet crude wholesale spot prices were hovering at $73.73/bbl on June 28 and had closed at $74.94/bbl on June 21, 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.