The tight conditions in the United States base oil market were exacerbated this week by unplanned outages and reduced operating rates at a couple of plants on the heels of Hurricane Delta, which made landfall on the U.S. Gulf Coast on Oct. 9.
There were reports that the Excel Paralubes’ API Group II plant near Lake Charles, Louisiana, which was already off-line due to disruptions caused in late August by Hurricane Laura, was again hit by severe weather. Hurricane Delta brought flooding and tornadoes to southwest Louisiana, causing additional damage to the power grid in the Lake Charles area, but there were no reports of employees having been injured, and there was minimal damage to the plant, according to sources. Excel Paralubes did not comment on its plant operations.
Market sources also noted that before Hurricane Delta was announced, Excel Paralubes had hoped to restart the plant by mid-October. Due to the additional setback brought about by Delta, it may take the producer several more days to bring the unit back on line. The producer had continued shipping out product by truck and rail from its storage facilities following Laura, but had stopped about a week ago as inventories had been depleted, sources said.
The nearby Phillips 66 refinery, which supplies Excel Paralubes with feedstocks for base oil production, has also been down since Hurricane Laura and remained off-line, but the company was hoping to restart operations in the next few days, pending resumption of power supply, sources said. On Monday, Phillips 66 completed initial assessments which indicated minor damage at its Lake Charles Manufacturing Complex, following Hurricane Delta.
Motiva was also heard to have reduced operating rates at its Port Arthur, Texas, Group II plant ahead of the hurricane last week, and lost approximately two to three days’ worth of production as a result, according to reports. The unit was back running at full rates, but the small setback came at a time when export markets have been clamoring for more Group II barrels. “Demand has slowed from an incredibly robust September, and [Motiva] has not been able to build any inventory yet,” a market source explained.
ExxonMobil was heard to have been closely monitoring the hurricane, but its base oil plants in Baytown, Texas, and Baton Rouge, Louisiana, were heard to be running at normal rates, according to sources.
U.S. Group I and II producers had been shipping large quantities of base oils to India, Mexico, South America, the Middle East and Africa in the weeks leading up to Hurricane Laura, but the unexpected production outages have tightened supply. Producers have focused on meeting domestic contract commitments and were turning export opportunities down.
September was a very strong month in terms of domestic demand, but October is already showing a bit of a slowdown, sources admitted, which is not unexpected for this time of the year.
Motiva had initiated a round of posted price increases in early September, and was promptly followed by a vast majority of suppliers, who raised postings by 15, 20, 25 and 30 cents per gallon, depending on the grade and the supplier, implemented between Sept. 7 and Oct. 1.
This week, there were sporadic reports that a major producer was seeking a fresh string of increases for its paraffinic base oils, but further details could not be ascertained. It was not clear whether the producer had communicated the increases to all of its customers, or only to those whose prices had not gone up during the previous rounds of hikes.
Blenders had hurried to secure cargoes ahead of base oil increases in September. Further down the supply chain, lubricant and additive consumers had also placed orders last month to beat finished product increases that were due to be implemented in early to mid October.
The steeper base oil values had triggered increase nominations for downstream finished lubricants and additives of 32-40 cents per gallon, or about 8-14%, to be implemented in early to mid-October.
On the naphthenic side, at least one producer also nominated a price increase due to the continued cost of handling refinery by-products in a weak distillate market against recent increases in crude oil values.
Cross Oil communicated a price increase of 25 cents/gal for its low viscosity base oils and 15 cents/gal for its high-vis oils, which went into effect earlier this week, on Oct. 13. No other producers had announced increases at the time of writing, but a couple of suppliers said they would reassess market conditions over the next few weeks.
Demand for pale oils was described as steady, with the lighter grades being less available than the heavier cuts. Most plants were reported to be running well, and no product shortages were noted.
Upstream, crude oil futures drifted lower, but traded within a narrow range, as production capacity in the U.S. Gulf of Mexico started to come back online, following Hurricane Delta, deepening concerns of a supply glut given a lackluster demand outlook.
On Tuesday, Oct. 13, November WTI futures settled at $40.20 per barrel on the CME/Nymex and had closed at $40.67/bbl on Oct. 6.
Brent futures for December delivery closed at $42.45/bbl on the CME on Oct. 13, from $42.65/bbl futures on Oct. 6.
Light Louisiana Sweet crude wholesale spot prices settled at $40.52/bbl on Oct. 12 and had closed at $40.02/bbl on Oct. 5, according to the Energy Information Administration.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
Posted Paraffinic Base Oil Prices
October 14, 2020
(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.
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