Additional naphthenic base oil price increases went into effect during the week, as Ergon and San Joaquin Refining communicated adjustments following similar initiatives by producers Cross Oil and Calumet.
On July 7, Ergon announced an increase in pricing of naphthenic oils in the North American market of 30 cents per gallon, applicable to all viscosities, with an effective date of July 12. “Key drivers for this increase include the continued supply/demand imbalance in the naphthenic market and increased cost of truck and rail logistics,” the announcement explained.
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Shortly after, San Joaquin also informed its customers that the company was raising the price of its naphthenic oils by 30 cents/gal, with the increase going into effect on July 9.
Cross Oil and Calumet had previously also increased naphthenic base oil prices by 30 cents/gal, with the markups going into effect on July 5 and July 6, respectively. Other naphthenic suppliers were considering adjustments as well, sources said.
Pale oil suppliers agreed that the market remained extremely tight, and that the situation was similar in other regions. This was reflected in the fact that buyers were seeking alternative sources of product, even if that meant having to incur higher transportation costs. A supplier was “fielding emails and calls from all over the world,” while another mentioned receiving numerous inquiries from buyers who were not its regular customers. However, most producers did not have much extra availability to offer for spot or export business, which supported the current pricing structure.
Most of the pale oils were snug, but it appeared that the 60, 100 and 750 vis grades stirred the highest buying interest. Sources also said that they expected demand to exceed supply for the rest of the year, with the possibility that a more balanced market would not be achieved until the year-end holidays.
The strained supply conditions were compounded by 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- to late 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 a freezing winter storm in February.
On the paraffinic base oils front, increase initiatives that raised prices for the sixth time since the beginning of the year have gone through, with postings moving up by 15 to 55 cents/gal, depending on the grade and whether the supplier had participated in all the previous rounds of price hikes. The increases saw implementation between June 15 and July 1.
In this segment of the market, prices were also supported by extremely tight supply, healthy demand, reduced operating rates at some refineries and prior production outages. Values were further propped up by steep crude and feedstock values and climbing transportation costs.
An unexpected outage at Ergon’s Newell, West Virginia, refinery following a significant fire on May 29 had exacerbated the strained conditions in the API Group I and Group II segments, but the base oils plant has been restarted. In a press release, Ergon announced that it had lifted the force majeure declared on June 1, with an effective date of July 9.
“The refinery has been operational since mid-June, and inventories of paraffinic base oils and waxes have been replenished to adequate levels, allowing Ergon to resume sales to customers on a ratable monthly basis,” the company stated. It also explained that the quick and effective response of local fire departments and Ergon employees had resulted in damage to be contained to the unifiner process. While the refiner has been able to restart base oil production, ongoing repairs to the naphtha unit will continue to impact gasoline production, it noted.
Availability of Group I and Group II base oils remained extremely limited, particularly for spot transactions. “I don’t see anyone with extra inventory,” a source commented, adding that inventory pressure on most grades would likely extend into December.
Many domestic consumers were on the lookout for bright stock and heavy grades, and there was also keen buying appetite from Mexico. “Demand and pricing in Mexico is still very strong,” a supplier noted. With U.S. material difficult to locate, there have been shipments from South Korea, Russia and Poland moving to Brownsville, Texas, and Mexico. A 4,000 metric ton cargo was being worked on to be lifted in Poland in mid July for delivery in Brownsville. A second 4,000-ton cargo was quoted from Singapore to the U.S. Gulf.
While Mexican buyers had been purchasing U.S. light grades for diesel extension, the current pricing does not work for this type of transactions, according to sources. Mexican price ideas needed pricing to be around $2.55-$2.60/gal in Brownsville, while current numbers for Group I light grades were hovering close to $3.70-$3.85/gal.
Participants also noted that Group III grades had seen heightened demand and supply had narrowed on the back of plant turnarounds in Asia and Europe. An increased number of cargoes of Middle East origin were heard to have reached the United States during May and June, but availability was still constrained as demand was not showing signs of letting up.
The tight base oil supply and heftier prices triggered additional increases in downstream lubricant, greases, additives and other finished products segments. Increases between 5% and 18% for implementation in late July and August have been announced, following a series of price increases during the previous months, which had come in response to base oil price hikes.
A number of lubricant manufacturers have been forced to place customers on allocation, reduce production rates, or implement brief shutdowns due to the lack of raw materials such as base stocks and additives.
Another roadblock for both base oil and lubricant manufacturers has been the transportation issues that have been plaguing deliveries. A lack of truck drivers–who appear to be leaving the oil industry for better pay elsewhere–and of railcars and containers has resulted in shipment delays and surging costs.
Supply disruptions of automotive chips ever since the start of the pandemic have also led to delays in car manufacturing output, which in turn has been affecting factory-fill lubricant demand, sources noted. Due to the delays in new car deliveries, there has been an increase in used car purchases, which has impacted the type of lubricants that consumers have been requesting at oil change stations.
Upstream, firm crude oil prices continued to place upward pressure on refined products and base oils. Crude oil futures rose by almost 2% on Tuesday after the International Energy Agency predicted tighter supply for the time being, as members of the OPEC+ had been unable to come to an agreement on whether to boost supply and demand has shown signs of strengthening.
West Texas Intermediate (WTI) August futures settled at $75.25/barrel on July 13, from $72.20/bbl on July 7.
Brent futures for September delivery settled at $76.49/bbl on the CME on July 13, from $73.43/bbl on July 7.
Light Louisiana Sweet crude wholesale spot prices were hovering at $74.86/bbl on July 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.