U.S. Base Oil Price Report

Share

Reports of difficulties in locating spot cargoes continued to circulate as a majority of paraffinic base oil producers do not have extra availability beyond those barrels needed to cover contractual commitments. 

The current lack of spot supply was the result of reduced operating rates at plants since the onset of the coronavirus pandemic in the United States in March, an uptick in demand following the easing of lockdowns, brisk export business, and unexpected shutdowns brought about by hurricanes along the Gulf Coast in recent weeks.

A major refiner with API Group II facilities in Texas, who has undergone brief outages due to hurricanes Laura in late August and Delta in early October, was heard to be running at full rates, but its inventories were still low given healthy domestic demand and numerous export transactions in the June-August time frame.

A second producer, who operates a base oil plant in Texas and another one in Louisiana, was also heard to be running well, but it is offering a limited number of spot cargoes as it has shipped significant amounts to its facilities in Singapore. It was heard that it had shipped 80,000 metric tons of base oils in August alone. One of the producer’s Group I plants in Singapore has been shut down since June for an indefinite period. The said producer has also been shipping product from its Rotterdam plant in The Netherlands to Singapore to help supply its lubricant production plant and meet term demand, according to sources.

The Excel Paralubes plant in Westlake, near Lake Charles, Louisiana, has been shut since Hurricane Laura caused serious damage to the power grid in the area and some structural damage to the plant and the neighboring Phillips 66 refinery, which supplies feedstock for base oil production.

While the Excel Paralubes unit has not been restarted, there were reports that the Phillips 66 refinery has been up and running since last Thursday, and would be ramping up rates in the next few weeks. Phillips 66 said that initial assessments had indicated minor damage at its Lake Charles Manufacturing Complex following Hurricane Delta. The Excel Paralubes plant was expected to follow shortly, but further details were unavailable.

The tight supply conditions have driven spot indications up, but some suppliers said that no matter how high the prices climbed, they were simply unable to entertain some inquiries. There has been strong buying interest from India, the Middle East and South America.

A large number of Group I base oil cargoes have also moved to Mexico in recent weeks, particularly given that the domestic refiner, Pemex, has been running its base oil plant at very low rates and only intermittently, sources said.

The Group III supply and demand balance has also narrowed in the U.S., as demand for these grades has increased, given improved activity in downstream automotive segments. Additionally, blenders rushed to place orders ahead of the September posted price hikes, and finished lubricant and additive buyers have also made sure they had secured product ahead of the price increases for finished products scheduled to become effective throughout the month of October.

Most Group III barrels continue to be imported from South Korea and the Middle East. Recent delays at Middle East ports seemed to be resolved, although an unconfirmed turnaround at a Middle East facility could result in reduced export availability, according to sources.

Furthermore, there has been fresh demand for Group III cuts in Latin America, since spot Group II supply from the U.S. was limited, and there were few, if any, alternative sources of Group II. Lubricant manufacturers resorted to new formulations and blending Group I and III base oils as a substitute for Group II base oils.

In production news, there were expectations that Petro-Canada would be shutting down its Group II and III base oil plant in Mississauga, Canada, for a turnaround in the fourth quarter, but this could not be confirmed.

The naphthenic side of the U.S. base oil business was also seeing vigorous activity, with prices exposed to upward pressure on tightening supply and a recent increase initiative by Cross Oil.

Cross Oil communicated that it had postponed the implementation of the price increase it had announced for its naphthenic base oils to Oct. 23, from an original date of Oct. 13. The company intends to fully implement an increase of 25 cents/gal for its low viscosity base oils and 15 cents/gal for its high-vis oils, driven by steep feedstock prices and the challenging refining environment as the distillate market has weakened, affecting base oil production.

Other base oil producers also mulled similar markups, but no other initiatives emerged by press time. While most pale oils were said to be accessible, there was less availability of the lighter grades, according to sources.

A number of producers expressed concern at the possibility that conditions would start to decline in November, as demand traditionally starts to dwindle ahead of Dec. 31. While this year has been highly atypical, there were even more uncertainties affecting business, given the rampant spread of the coronavirus on a global scale.

The upcoming U.S. presidential elections were also expected to affect market fundamentals, particularly as far as the country’s trade relations with China were concerned.

Crude oil and fuel prices were similarly impacted by the pandemic, and prospects of reduced oil demand if new lockdown measures were to be implemented. Some of these measures started to be imposed in several European nations, where the number of new cases spiked. Some pandemic-related restrictions were still affecting the economy in the U.S. and many South American nations.

Crude oil futures were down and then up on Tuesday on last-minute spot trading, but prices were weighed down by uncertainties about a global resurgence of coronavirus cases, possibly halting an ongoing recovery in fuel demand. Growing oil output from Libya could also add to the supply glut.

Demand for crude oil has recovered since April, hovering slightly above 90% of pre-pandemic levels, analysts said, but the recovery could backtrack if infections continue to increase and new lockdowns are imposed.

On Tuesday, Oct. 20, November WTI futures settled at $41.46 per barrel on the CME/Nymex and had closed at $40.20/bbl on Oct. 13.

Brent futures for December delivery closed at $43.16/bbl on the CME on Oct. 20, from $42.45/bbl futures on Oct. 13.

Light Louisiana Sweet crude wholesale spot prices settled at $42.04/bbl on Oct. 19 and had closed at $40.52/bbl on Oct. 12, according to the Energy Information Administration.

Vacuum gas oil – or VGO – was at Nov. WTI plus $8/bbl ($49.46/bbl) on Oct. 20, according to data gathered by OPIS PetroChemWire.

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.

Related Topics

Base Oil Pricing Report    Market Sectors