U.S. Base Oil Price Report

Share

Activity has not let up significantly in the United States market despite the summer holidays, with most base stocks seen as hot commodities pursued by anxious buyers, many of whom have had to cut back downstream manufacturing rates due to a shortage of certain grades and additives.

However, supply of a number of base oils has started to improve – namely the light viscosity cuts, which had been slightly less tight than their mid- and high viscosity counterparts. “The light grades are starting to come to a more balanced state. They are definitely far from long, but are much improved from where they were a few months ago,” a source noted. The fact that at least two API Group II U.S. Gulf producers have offered light viscosity cargoes for export was a sign that that segment was starting to lengthen. These cargoes were heard to be heading to India. Export opportunities helped suppliers keep the domestic market from getting oversupplied.

Get alerts when new Sustainability Blog articles are available.

Loading

Nonetheless, participants reiterated that securing the heavier grades such as the  Group I SN500 and bright stock, Group II 600N and the Group III 4 centiStoke cut was still challenging, with most sellers acknowledging sold-out positions and difficulties in keeping up with orders as inventories have been depleted. This resulted in almost no spot cargoes being offered, and contract shipments being delayed, with some orders placed now not expected to be delivered until October or November. A shortage of trucks and truck drivers was a key element in the logistical nightmare. “We have been able to accept orders, but they are not shipping with our normal lead time,” a supplier acknowledged.

With the lengthening of supply of the Group II light grades and the Group III 6 cSt and 8 cSt came a softening of spot indications. Spot prices were heard to have edged down by just a couple of pennies per gallon, but this was still seen as good news by consumers, who have been dealing with almost weekly markups since last year.

Improved base oil availability in other regions such as Asia and Europe has led to arbitrage opportunities and attempts by traders to conclude business involving Northeast Asian light-vis cargoes and Group I heavy grades from the Baltic to the U.S. Some of these cargoes may then move on to Mexico, according to sources. Mexican consumption of light grades in particular was described as strong. About 13,000 metric tons of light viscosity Group II base oils were making their way from South Korea for delivery to Brownsville, Texas. These parcels were then anticipated to be moved to Mexico to be used as diesel extender.

The fact that supply levels have grown and prices were softening in other regions impacted spot price ideas in the U.S., with buyers appearing more guarded about accepting the steep offers on the table.

Consumers also expressed some relief because softer spot prices and more plentiful supply, along with slipping crude oil and feedstock values over the last couple of weeks were likely to keep base oil posted prices steady.

Blenders said that they were still trying to offset the persistent rise in both paraffinic and naphthenic base oil prices seen for most of the year by implementing increases on downstream lubricants, greases, additives and other finished products. They admitted that it had not been an easy process, but that the markups were being pushed through. Increases coming into effect this month were in response to base oil price hikes implemented in late June and early July. 

Lubricant manufacturers also commented that while raw materials and additives supply had improved, the situation was far from ideal, citing recent setbacks in the availability of certain components. Added to this was the threat of increasing coronavirus infections spurred by the Delta variant in many states, which could affect fuel and lubricant demand, business levels and manufacturing operations.

The naphthenic base oils segment was also characterized by snug supply, steady demand and firm raw material values. This had led to price increases of 30 cents per gallon implemented between July 5 and July 12. No further adjustments have emerged, but participants kept an eye out on supply and demand conditions and possible price revisions. Buyers were expected to resist any upward movements as it had been challenging to offset the recent base oil price hikes. Demand from Latin America, Europe and Asia was still thriving, sources said.

A minor turnaround at Cross Oil’s Smackover, Arkansas, base oil plant in September might tighten availability of pale oils. The maintenance will last approximately 12 days, starting on Sept. 13, and will involve a catalyst change. The unit can produce 5,000 barrels per day of naphthenic base oils, according to Lubes’n’Greases’ Guide to Global Base Oil Refining.

Valero was also heard to be recovering from an unplanned shutdown caused by a fire at its Three Rivers, Texas, refinery in June and a production outage during the freezing winter storm in February. The refinery has capacity to produce 2,400 barrels per day of naphthenic base oils.

Upstream, West Texas Intermediate crude oil hit its lowest level since May in intraday trade on Monday, extending last week’s decline on the back of a firmer U.S. dollar and concerns of a rise in COVID-19 cases in China, which could contribute to a drop in global fuel consumption and lower crude demand. China’s July crude imports were reported down 20% year-on-year. A surprise build in U.S. crude inventories also weighed on prices.

WTI September futures settled at $68.29/barrel on August 10, from $70.56/bbl on Aug. 3.

Brent futures for October delivery settled at $70.63/bbl on the CME on Aug. 10, from $72.41/bbl on Aug. 3.

Light Louisiana Sweet crude wholesale spot prices were hovering at $67.16/bbl on Aug. 9, from $71.81/bbl on Aug. 2, 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.