The tight supply situation continued to be at the forefront of discussions in the base oils market, but availability of some grades started to improve. However, the additional supplies may dry up soon, with turnarounds scheduled to start in February. Meanwhile, most of the announced posted price increases were implemented during the week.
A vast majority of paraffinic and naphthenic producers and rerefiners communicated posted price increases of 40 cents per gallon, although Motiva raised prices by 23, 28 and 30 cents/gal and Chevron lifted postings by 39, 40 and 42 cents/gal. All of the increases were slated to go into effect between Jan. 15 and Jan. 25.
On the naphthenic base oils front, Cross Oil, Ergon, Calumet and San Joaquin Refining announced increases of 40 cents/gal with effective dates peppered between Jan. 20 and Jan. 26.
The price increases were said to be driven by rising crude oil and feedstock values and the strained supply conditions which have characterized the market since the end of the third quarter of 2020.
The lower increase amounts nominated by one of the suppliers prompted some resistance from a number of buyers against the 40-cent increase. However, the tight supply and steeper crude oil and vacuum gas oil costs continued to support the increase initiatives, sources said.
A lack of extra availability fueled a steady rise in spot prices, which in turn also pressured posted values. While interest for spot export supplies remained healthy, in early January, producers still had little additional material to offer, once contract commitments had been met. This was partly the result of refineries and base oil plants having to run at reduced rates since the start of the coronavirus pandemic, which prompted a slump in fuel consumption.
However, a few refineries were heard to have marginally increased production rates as margins have improved. For example, the Calcasieu refinery in Louisiana, which was shut down following hurricane-related disruptions last August, was heard to be preparing to restart operations in early February. Feedstocks for base oil production from this facility are supplied to various plants on the U.S. Gulf Coast.
Domestic base oil demand has slowed down slightly due to softer conditions in downstream lubricant and additives segments. A number of producers were also limiting the volumes sold into the domestic market to free up some barrels for export, as prices were more attractive on that front. This allowed at least a couple of producers to offer spot cargoes of light grades intended to move to Mexico, India and the Middle East.
API Group I supplies remain particularly tight ahead of a couple of plant turnarounds in the first quarter. Calumet and HollyFrontier were anticipated to be taking their plants off-line for routine maintenance in February and were currently building inventories to cover requirements during the outages.
While Group II availability was still strained, it appears that this segment is loosening up slightly. Group III supplies remained tight due to turnarounds at facilities in Asia and the Middle East, against steady demand for these grades, according to sources.
On the naphthenic side, San Joaquin Refining will shut down its unit for annual maintenance from approximately Feb. 1 to Feb. 15 and was expected to be on allocation from mid-January through the end of February.
Cross Oil’s unit in Smackover, Arkansas, was also anticipated to be taken off line in March for a turnaround, and this could exacerbate the snug supply situation for pale oils as limited extra availability was expected.
The naphthenic oils segment was also tight given healthy domestic consumption and robust demand for exports into South America, where heavy naphthenic grades were utilized in certain blending applications in lieu of paraffinic oils.
Downstream, finished lubricant producers said that price increases between 8% and 15%, proposed in response to base oil and production increases in December, were in the process of being implemented during the second half of January and early February. However, given the most recent round of base oil price increases, lubricant suppliers have issued additional price increase nominations to offset the steeper raw material values. Finished products manufacturers have either adjusted up the original increase amounts to between 15% and 30%, or are implementing a second increase of 8% to 15% in late February. The situation was still evolving, and some blenders said they were waiting to see what the additive suppliers’ increase would be before making a decision.
While some finished product suppliers saw a pickup in demand ahead of the increases, others said that the upswing in early January had not emerged as expected, possibly because of reduced mobility and lubricant demand in some areas of the country on the back of COVID-19 flare-ups and lockdowns.
Crude oil futures strengthened earlier in the week on concerns about supply curtailments, as Iraq will be slashing production to counter excess output over its OPEC+ quota, but the trend was dampened by prospects of ongoing global pandemic-related problems.
On Tuesday, Jan. 26, March WTI futures settled at $52.61 per barrel on the CME/Nymex, and had closed at $52.98/bbl for February futures on Jan. 19.
Brent futures for March delivery settled at $55.91/bbl on the CME on Jan. 26, from $55.90/bbl on Jan. 19.
Light Louisiana Sweet crude wholesale spot prices were posted at $54.78/bbl on Jan. 25 and had closed at $55.30/bbl on Jan. 15, according to the Energy Information Administration. (There was no trading on Jan. 18 due to the Martin Luther King Jr. holiday).
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.