Please note: This version of the report has been updated to include additional pricing information.
Paraffinic and naphthenic base oil producers communicated price increases over the last several days, initiating a second round of price markups in about a month. The adjustments were driven by the current strained supply conditions and steeper feedstock and production costs, as crude oil futures have surged to their highest levels in 13 months. The tight conditions may be exacerbated, as freezing weather has forced several refineries to shut down in Texas.
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According to reports, on Feb. 11, ExxonMobil communicated a posted price increase of 30 cents per gallon for all of its API Group I, Group II and Group II+ base oils, with an effective date of Feb. 19.
Chevron announced a price increase of 25 cents/gal for its Group II base oils, which will go into effect on Feb. 17.
Sources also reported that HollyFrontier would be increasing its Group I prices by 30 cents/gal on Feb. 19.
Other producers were evaluating conditions and considering potential price adjustments as well.
Sub-zero temperatures in many parts of Texas resulted in extensive power and communications outages, which likely delayed decisions about pricing. Around 4.4 million customers were affected, according to Reuters. The lack of power supply and deep freeze conditions forced a number of refineries to shut down, while the Houston Ship Channel was also expected to be closed.
Motiva was heard to have shut down its Port Arthur, Texas, refining complex and will monitor conditions to determine when it would be safe to restart operations, sources said. Motiva operates a 40,000 barrels per day Group II base oil plant in Port Arthur. Exxon shut down its refineries in Beaumont and Baytown as well. The Beaumont complex does not produce base oils, but the Baytown refinery houses an 8,200 bb/d Group I and 18,800 bbl/d Group II unit. A confirmation of the shutdowns by the producers could not be obtained by press time.
Many terminals along the Houston Ship Channel, a waterway connecting petrochemical plants with the Gulf of Mexico, were also heard to have been closed due to the weather, according to media reports. The Channel had opened for some vessel traffic on Tuesday, but was expected to shut again due to an impending cold blast in the evening, Reuters reported. The winter storm has also caused delays in product delivery via truck and rail from Ergon’s naphthenic refinery in Vicksburg, Mississippi, the company announced today in a press release.
The market continued to be afflicted by a lack of availability of a number of base oil grades, with Group I bright stock standing out as one of the grades that was most difficult to acquire, leading to significant price jumps in recent weeks. Spot export prices for bright stock have moved up steadily, with the latest indications hovering above $4 per gallon.
The strained conditions of all grades, but the heavy-viscosity cuts in particular, were the result of reduced operating rates at some plants since the start of the pandemic, steady demand and healthy buying interest for United States exports. This week’s shutdowns in Texas will likely exacerbate the tight conditions.
A couple of scheduled turnarounds have intensified the lack of readily available supplies. Calumet will be completing a routine turnaround at its Group I and Group II unit in Shreveport, Louisiana, at the end of the month. HollyFrontier‘s Group I plant in Tulsa, Oklahoma, is also undergoing a turnaround. The plant was expected to remain off-line for approximately thirty days. Both producers will be meeting contract commitments during the turnarounds, but did not anticipate extra availability for a few weeks.
On the naphthenic side, Cross Oil plans to increase all of its naphthenic oils by 30 cents/gal, effective Feb. 19. The adjustment was necessary to recover the rapidly rising cost of naphthenic crudes, refinery feedstocks and in-bound transportation, a company source explained. The producer will also limit orders to contract quantities during the transitional period and may limit sales based on available inventory.
Cross Oil is planning to take its base oil plant in Smackover, Arkansas, off-line for a 20-day maintenance program on Feb. 26, but expects to be able to meet all of its contractual obligations during the outage.
San Joaquin Refining was expected to complete annual maintenance at its Bakersfield, California, refinery, later this week. The unit was taken off-line from Feb. 1, and as a result, customers were placed on allocation from mid-January through the end of February. The producer had prepared inventories ahead of the turnaround to meet contract commitments.
Contrary to reports that circulated the market, Ergon will not be taking its naphthenic plant in Vicksburg, Mississippi, off-line for a turnaround this year, as it completed a scheduled maintenance program in the spring last year. The producer has planned a turnaround at its paraffinic refinery in Newell, West Virginia, with further details expected to become available in the coming weeks.
The fresh string of base oil increases followed a previous round that saw a majority of producers implement 23- to 40-cent per gallon markups in late January. The increase was placing additional pressure on finished lubricant producers, who said that the higher base stock prices were very difficult to absorb or transfer down the supply chain.
Blenders and additive manufacturers were in the midst of implementing hikes for their products in an effort to offset a December base oil price increase plus the January markups. Some of these adjustments had originally been slated to go into effect between late January and February. A number of suppliers have revised the amount of the increase, some have issued a second increase, and others recalled the first increase and will only implement a higher markup in late February/March. The increases ranged between 3% and 30%, depending on whether they reflected a fresh increase, or a combined increase. However, it was too early to determine the impact of the latest round of base oil increases on finished product pricing.
Upstream, crude oil futures continued to trade near one-year highs, supported by a strong demand outlook as major global economies seemed to be recovering, there were supply disruptions in the Middle East, and freezing temperatures in Texas – the state with the highest production of crude – could curb oil production.
On Tuesday, February 16, March WTI futures settled at $60.05 per barrel on the CME/Nymex, and had closed at $58.36/bbl on Feb. 9.
Brent futures for April delivery settled at $63.35/bbl on the CME on Feb. 16, from $61.09/bbl on Feb. 9.
Light Louisiana Sweet crude wholesale spot prices were hovering at $61.55/bbl on Feb. 12 and had closed at $59.75/bbl on Feb. 8, according to the Energy Information Administration. There was no trading on Monday, Feb. 15 due to the Presidents’ Day holiday, and Feb. 16 settlements have not been posted yet.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
(Prices are FOB basis, in U.S. dollars per gallon and U.S. dollars per metric ton).
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.