U.S. Base Oil Price Report

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Ergon announced a naphthenic base oils price increase this week, joining other producers who have lifted values on the back of tight supply, climbing feedstock and crude oil prices and other elevated costs. The naphthenic segment is where most of the upward price action took place this week, as postings on the paraffinic side were mostly stable. It was the spot values that have softened on slightly improved supply.

Ergon communicated an increase in pricing of naphthenic oils in the North American market of 25 cents per gallon, effective Oct. 1. The increase will apply to all viscosities.

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Cross Oil, Calumet and San Joaquin Refining have also communicated 25 cents/gal increases that were scheduled to go into effect between Sept. 21 and Sept. 28. Suppliers explained that the markups had been necessary to offset increases in crude oil, natural gas, and transportation. Other suppliers were also heard to have raised prices for their pale oils.

Supply in the naphthenic segment has been strained since the last quarter of 2020, and this situation was compounded by unplanned outages and maintenance programs this year. “Demand is still strong from all regions. We expect to be in a sold-out position on most viscosities through the end of the year. Typically, buying softens over the holidays, so I expect to be balanced by the new year,” one of the suppliers noted.

Currently, there was only one naphthenic base oil plant on the United States Gulf Coast that was experiencing production issues due to the lingering effects of a freezing winter storm in February and other disruptions.

A majority of the remaining plants were running well, but inventories were still fairly low. Cross Oil has restarted its Smackover, Arkansas, naphthenic base oils plant, following a minor turnaround that began on Sept. 13 and involved a catalyst change in the hydrotreater. The unit, which has a nameplate capacity of 5,000 barrels per day of naphthenic base oils, was running at normal rates, according to a company source.

Ergon has scheduled a planned maintenance event at its naphthenic refinery in Vicksburg, Mississippi, beginning Oct. 23. Ergon expected the plant to be down for seven to 16 days as the company implements several reliability improvements. No supply interruptions were expected for Ergon’s current ratable customers, as product inventory levels are sufficient to support sales during the planned outage, the company said. Ergon’s base oil plant in Vicksburg can produce 25,000 b/d of naphthenic base oils, according to Lubes’n’Greases Base Stock Plant Data.

Calumet has scheduled a turnaround that will last one to two weeks at its Princeton, Louisiana, plant in early November. The unit has a capacity of 6,900 b/d of naphthenic base oils.

Further ahead, San Joaquin Refining plans to start a three-week maintenance shutdown on Feb. 1, 2022. San Joaquin’s plant in Bakersfield, California, can produce 8,100 b/d of naphthenic base oils.

Both the naphthenic segment and the paraffinic sector were still dealing with the aftermath of Hurricane Ida at the end of August and Tropical Storm Nicholas on Sept. 14. While most base oil plants in the storms’ path were spared and suffered minor damage, there were still logistical issues such as railcar re-routing and reduced terminal operations that disrupted shipments in and out of several plants in Texas, Louisiana and Mississippi and other states as well, as the effects were not limited to the geographical areas hit by the storms.

Most paraffinic producers reported very little spot availability, although it appeared that supply of the lighter grades was lengthening faster than for the heavy-vis cuts. The API Group I heavy viscosity grades and bright stock were still fairly tight, but an influx of products from Europe and the Baltic has relieved some of the pressure.

Group II supplies were snug, but buyers did not appear as anxious about being able to acquire all the product they needed as they were earlier in the year. Producers were trying to catch up on a backlog of orders, but conditions were more manageable. “We are getting some calls, but not nearly to the degree that we were earlier in the year after the supply issues caused by the freeze,” a source noted.

The improved supply levels of Group I and Group II base stocks have resulted in downward adjustments of spot prices, which ranged from a few pennies to 20 cents/gal, depending on the grade. Some of the extra availability of the light grades has been earmarked to move to Mexico and India. On the other hand, the tighter supply situation of the heavier grades in the domestic market has prompted discussions to bring Group II base oils from South Korea to the U.S.

The Group III segment displayed strained conditions and spot prices have therefore remained firm. Even though increased volumes were being shipped to the U.S. from the Middle East and South Korea, there did not appear to be enough to cover all requirements, although the situation seemed to be improving.

The recent storm-related supply and logistical disruptions exacerbated the challenges that many blenders and finished products manufacturers have had to face ever since the start of the pandemic, which had caused shutdowns at additive, chemical and blending plants. Manufacturers have had to implement allocation programs and shut down production temporarily due to a lack of base oils—Group III in particular—and of other raw materials.

Seven rounds of base oil posted price increases and increases of other costs such as transportation and packaging have also placed severe pressure on finished products pricing. As a result, several initiatives have emerged which called for lubricant and grease increases for September and October implementation.

One of the manufacturers who increased prices in September was Highland Warren. The company announced an increase for full synthetic lubricants of 10%, synthetic blend heavy-duty engine oil of 5%, and packaged products of 5%, effective Sept. 13.

Safety-Kleen communicated an increase for full synthetic and synthetic blends of up to 10% in bulk, and 5% for packaged products, effective Sep. 15. This was the company’s seventh increase for the year due to prevailing market conditions.

Omni Specialty Packaging communicated a price increase of up to 8% on conventional lubricants, up to 12% on full synthetic lubricants, and up to 8-10% on brake fluids, effective Oct. 15.

It was heard that Holly Frontier/Petro-Canada Lubricants USA and Canada intended to increase full synthetic PCMO products in October as well.

Car manufacturers have also felt the effects of a shortage of automotive chips or microprocessors, which has led to plant shutdowns and a reduction or delay in factory-fill lubricant demand. This was particularly affecting Mexican car manufacturing operations. A lack of investment in the older chip manufacturing process was also contributing to the shortage. According to CleanTechnica.com, “The automotive industry needs to design new circuit boards for newer chips and replace the antiques. They are resisting the investment, and they are lacking the ‘in-house’ know-how… The new way is like Tesla does it – a single circuit board that does everything.”

In upstream markets, crude oil futures jumped to three-year highs on signs that global demand for energy would increase as the winter months approached in the Northern Hemisphere, and there were concerns about a potential supply crunch. However, crude production quotas were expected to be revised at an OPEC+ meeting scheduled for Oct. 4.

On Sep. 28, West Texas Intermediate November futures settled at $75.29/barrel, from $70.56/bbl on Sep. 21.

Brent futures for November delivery settled at $79.09/bbl on the CME on Sep. 28, from $74.36/bbl on Sep. 21.

Light Louisiana Sweet crude wholesale spot prices were hovering at $76.62/bbl on Sep. 27, from $71.11/bbl on Sep. 20, 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.