The rising spot indications were pressuring contract prices, but at the same time, the drop in crude oil values early this week meant that some of the stress on base oil prices may be weakening.

The supply tightness has been evident since the third quarter of last year, when demand recovered following the first waves of the coronavirus pandemic, but was exacerbated by a freezing winter storm that wreaked havoc on refinery production along the United States Gulf Coast last February.

To make matters worse, unexpected incidents such as fires at a couple of paraffinic and naphthenic facilities decidedly tipped the balance to the snug side. Both producers and buyers were running on lean inventories and had been unable to build stocks ahead of the Atlantic hurricane season.

Last week, Ergon announced that effective July 9, it had lifted the force majeure declared on June 1 on base oil production from its Newell, West Virginia, paraffinic base oil plant, which had been shut down following a fire on May 29. This was welcome news as any additional product coming into the market was greeted with relief.

Participants reported strained conditions in most segments, but the API Group I heavy viscosities and bright stock, most of the Group II grades, and the Group III 4 centiStokes grade were at the top of the list in terms of difficulty in locating sizeable cargoes.

The 4 cSt cut is usually the tightest of all the Group III grades, but it was particularly snug at the moment, sources said. The limited Group III availability was partly attributed to recent turnarounds at Group III plants in Asia and some unexpected production issues over the last month. Several Middle East cargoes have been shipped to the U.S. in recent weeks and more were expected to arrive in the coming months.

Some Group I and Group II cargoes from Europe and Asia were heard to be making their way to various destinations in the Americas to fill the void left by a lack of export supplies from the U.S.

Naphthenic base oils were extremely tight as well. The 60, 100 and 750 vis grades were the most highly sought and hardest grades to obtain. Buyers in other regions have also been interested in securing cargoes in the U.S., but there were not many extra barrels available. A majority of naphthenic producers have implemented 30-cent/gal price increases between July 5 and July 12.

Paraffinic base stock producers raised prices for a sixth time since the beginning of the year between June 15 and July 1, 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 most recent round of paraffinic and naphthenic price hikes, together with rising transportation, packaging and other production costs were placing upward pressure on downstream lubricant, grease and additives segments.

Blenders and finished products manufacturers were poised to implement increases between 5% and 18% in late July and August. However, participants acknowledged that these hikes were not sufficient to cover the most recent base oil price adjustments, as base oil values have steadily risen since December of last year.

A number of lubricant manufacturers have also placed customers on allocation, reduced output rates, or implemented brief shutdowns given a dearth of raw materials such as base stocks and additives.

Upstream, crude oil prices rebounded briefly on Tuesday after tumbling more than 7% on Monday – the largest drop since March – following a major sell-off on fears that the spread of the COVID-19 Delta variant would trigger a slowdown in the country’s economic recovery. Additionally, OPEC+ also reached an agreement to boost production at meetings held over the weekend. China’s growth was also showing signs of slowing. Nevertheless, analysts said that the drop may be a temporary hiccup and that oil prices were not likely to slide much lower as demand was likely to recover. On Tuesday, some crude buyers took advantage of oil’s two-month low, which lifted prices slightly.

West Texas Intermediate (WTI) August futures settled at $67.42/barrel on July 20, from $75.25/bbl on July 13.

Brent futures for September delivery settled at $69.35/bbl on the CME on July 20, from $76.49/bbl on July 13.

Light Louisiana Sweet crude wholesale spot prices were unavailable at press time as the Energy Information Administration website was down.

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.