U.S. Base Oil Price Report

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Cross Oil and Calumet announced price increases for their naphthenic oils this week. Base oil and lubricant market participants were coping with transportation and logistics disruptions and raw material shortages caused by Hurricane Ida on Aug. 29. They were also keeping an anxious eye on Tropical Storm Nicholas, which moved across the Texas and Louisiana coasts on Tuesday, drenching the region with torrential rains and leaving hundreds of thousands without power.

Cross Oil communicated a price increase of 25 cents per gallon across the board, effective September 22, and explained that “this increase is being driven by market factors, including increases in crude oil, natural gas and continued inflation for inbound transportation.” The producer will limit orders to contract quantities during the transitional period and may limit sales based on available inventory.

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Calumet announced a price increase for all of its naphthenic oils of 25 cents/gal shortly after, which will go into effect on Sept. 21.

Cross Oil also took its Smackover, Arkansas, naphthenic base oils plant off-line on Sep. 13 for 12 days to complete a catalyst change in the hydrotreater. The shutdown was on schedule, the company confirmed. The unit has a nameplate capacity of 5,000 barrels per day of naphthenic base oils, according to Lubes’n’Greases’ Base Stock Plant Data.

Despite being relatively brief, Cross Oil’s turnaround was expected to exacerbate the tight situation seen on the naphthenics side of the business. “All naphthenic refiners remain oversold,” a source remarked. The snug situation could turn even more dire as there are two other turnarounds scheduled in the last quarter of the year.

Ergon will be taking its 25,000 b/d plant in Vicksburg, Mississippi, off-line in October for a maintenance program, and Calumet has scheduled a turnaround that will last one to two weeks at its Princeton, Louisiana, plant in early November. The unit can produce 6,900 b/d of naphthenic base oils.

Supply in most segments on the paraffinic front also remained strained, and it was therefore even more concerning if there were additional production outages caused by Tropical Storm Nicholas this week. Some of the tightness has been mitigated by the influx of imports, in particular of base oils originating in South Korea and the Baltic to Brownsville, Texas, but buyers and sellers were still trying to build inventories and there was little product available for spot business.

Nicholas made landfall on the Texas coast early on Tuesday and was upgraded to a hurricane after reaching land, but later weakened to a tropical storm as it moved towards Louisiana, Mississippi and Florida, dumping several inches of rain and causing extensive flooding.

The first reports received from the area pointed to widespread power outages, flooded train tracks and railcar re-routing, but no base oil production issues were reported at the time of writing. ExxonMobil’s refineries in Baytown and Beaumont, Texas, were operating normally, according to sources. Ports in the Houston area were closed on Tuesday.

Market players in both base oils and lubricant segments concurred that while most refineries that had originally been affected by the arrival of Hurricane Ida a couple of weeks ago had resumed normal operations, many issues such as a lack of electricity continued to plague terminals and distribution points in Louisiana and Mississippi, as well as rail and barge transportation systems. “Hurricane Ida has caused delays in rail and water transportation, and trucks are even harder to secure,” a source confirmed.

“Many terminals are operating at low rates due to minimized power,” a source added. “[They are] using their own generators. Rail and truck movements are very slow.” Another source noted that the Stolthaven terminal near New Orleans continued to run on generators and it was therefore operating at reduced capacity. This has caused delays and tight availability of Group III base oils, as the Stolthaven terminal is a key distribution point for Group III imports to the U.S.

Driven by market fundamentals, Group III producer Motiva increased prices by 50-55 cents/gal on Aug. 26 and Petro-Canada raised its Group III postings by 55 cents/gal on Sep. 7.

Lubricant blenders said that most plants were running well, but many were running low on additives – which had already been in short supply before the hurricane – and have found themselves “having to ration synthetic lubes due to limited Group III availability.”

Lubricant and fuel additives manufacturer Chevron Oronite was heard to have been forced to idle operations at its Belle Chasse, Louisiana, plant due to Ida’s impact, but this could not be confirmed with the company directly.

A lubricant manufacturer also mentioned PCMO additive supply issues from another major additive producer over the past 30 days, which caused volumes delivered to some customers to be cut in half or more. The afflicted supplier did not anticipate the situation to improve until late October, and even then, it may still be short on all of its additives. Sources said that suppliers “did not expect things to get back to a fully balanced state until sometime in Q1 2022.”

The logistical and transportation issues caused by the hurricane drove manufacturing costs to higher levels, and this, together with steeper base oil and additive values and short supply of Group III, placed pressure on downstream lubricant and grease manufacturers, who sought to offset the climbing costs by announcing markups.

A number of manufacturers – including Old World Industries, Smitty’s Supply, CAM2 International, and Nu-Tier Brands International/Gulf Lubricants – announced increases for their finished products, synthetic lubricants, conventional oils and greases, of between 5% to 15% for late September implementation.

In Mexico, base oil demand remains robust, and some of the pressure has been relieved by an influx of imports from other regions such as Asia and Europe. However, the flow of imports may be reduced as more attractive opportunities have cropped up in other areas. Supply chain disruptions in the automotive segment – such as a lack of automotive chips – and the pandemic have impacted auto factories in Mexico as well, with some of them having to shut down temporarily.

Mexican buyers have especially been keen on locating high-viscosity grades and bright stock. While increased availability from one bright stock producer in the U.S. has helped fill some supply gaps, another producer was running at full rates, but was still unable to meet all requirements.

Base oil participants acknowledged that activity in the second half of August had slowed down and this trend had become more noticeable last week due to the Labor Day holiday. However, most suppliers remained confident that demand would pick up this month, but that crude oil price fluctuations had imbued the market with uncertainty and complicating customers’ decision-making in terms of base oil orders. “Many are thinking prices will drop, so they are holding back as much as possible,” a source commented.

Upstream, crude oil futures jumped to a six-week high on Tuesday as Hurricane Nicholas weakened into a tropical storm, but was still threatening to bring widespread floods and power outages to Texas and Louisiana. Refineries in the area had braced for the severe weather. A forecast by the International Energy Agency predicting an increase in oil demand for the rest of the year also boosted numbers.

West Texas Intermediate October futures settled at $70.46/barrel on Sep. 14, from $68.35/bbl on Sep. 7.

Brent futures for November delivery settled at $73.60/bbl on the CME on Sep. 14, from $71.69/bbl on Sep. 7.

Light Louisiana Sweet crude wholesale spot prices were hovering at $72.29/bbl on Sep. 13, from $71.84/bbl on Sep. 3, according to the Energy Information Administration (There was no trading on Sep. 6 due to the Labor Day holiday in the U.S.).

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.