Change in Pricing Pressure Seen for U.S. Base Oils


API Group III base oil prices in the United States have stayed high while values for Group I and II oils dropped steeply from record levels in mid-2022, but values for all three grades could soon experience pressure in the opposite directions thanks to increased Group III output in the U.S. and upcoming shutdowns at several Group I and II plants.

That was the assessment of an Argus reporter who addressed the Argus Global Base Oils Conference in London last month. Argus Market Reporter John Dietrich said domestic production – which is mostly Group I and II – sagged last year and should be hampered by maintenance turnarounds during the first half of this year, setting up those segments for tighter availabilities.

“U.S. production slowed in 2022 on weaker demand after a firmer recovery in 2021, while several Group II base oil refineries will be primed to run at firm rates after the completed catalyst change outs from mid-2023,” he said during his Feb. 21 presentation.

Base oil prices around the world skyrocketed during the COVID-19 pandemic as oil refiners cut back on operations and the health crisis and other disruptions hampered base oil supply even as lubricant demand rebounded from a dip during the coronavirus’ early months.

In the U.S. prices for Group I solvent neutral 150 and Group II 100 neutral rose from around $2 per gallon during February of 2020 to around $5.50 per gallon last August, Dietrich said. Values for Group III 4 centiStoke oils rose from roughly $3 per gallon to more than $6.50 over the same period.

By February prices for the Group I and II grades fell back to approximately $4 per gallon, but the light Group III grade was still above $6, he said.

U.S. finished lubricant demand, which had rebounded strongly during 2021, fell back in 2022, leading to surpluses of Group I and II that caused prices to fall, Dietrich said. Group III prices stayed high because supply-demand balances tightened around the world. Some suppliers in some regions implemented allocations that limited amounts that customers could purchase.

But supply of Group I and especially Group II is likely to snug up due to several maintenance turnarounds, he said. PBF Energy’s 11,000-barrel-per-day plant in Paulsboro, New Jersey, was scheduled to close for two to three weeks in March, while Chevron’s 21,700 plant in Pascagoula, Louisiana, which makes mostly Group II but a small amount of Group III, is due to shutter for at least a month during the second quarter. These temporary closings follow extended turnarounds since last summer of Chevron’s plant in Richmond, California, Motiva’s Port Arthur, Texas, plant and Excel Paralubes’ facility in Westlake, Louisiana – all large Group II producers.

Refiners were already shifting feedstocks to production of fuels, which had relatively wide margins, and they continue to do so, Dietrich said. Coming on top of that practice, the production interruptions from maintenance turnarounds have been soaking up U.S. surpluses of Group I and II and could start to exert upward pressure on prices, especially for Group II 600N, a heavy grade. Indeed, the premium that 600N brings over 100N prices rose from about 50 cents per gallon last August to around $2 per gallon in February.

The U.S. market has long been one of the world’s biggest Group III importers as it had almost no capacity of its own to produce that category of oil. Chevron, however, has started making Group II in both Richmond and Pascagoula. Dietrich said the increase in domestic production – along with large amounts of imports from South Korea and the Middle East Gulf – could start to exert downward pressure on Group III prices in the U.S. He noted that U.S. prices for 4 cSt Group III – which had been higher than in Northwestern Europe or Singapore since early 2021 – fell below the former region since November.