U.S. Base Oil Price Report

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The end of another week caught spot buyers struggling to track down cargoes, as the United States market remains tight, with limited product offered on a spot basis and prices edging up. Ongoing production outages and reduced output were partly to blame for the strained conditions, but November might offer a different picture.

Most participants reported continuing snug availability, and while a majority of customers are able to secure volumes that have been agreed under contract, spot cargoes were extremely difficult to find, according to sources.

An API Group II/III producer with facilities in Canada was heard to have placed its customers on allocation; it was not clear whether this was due to reduced run rates at the refinery since the start of the coronavirus pandemic, or the start of a turnaround.

The Group II segment remains tight, but the restart of the Excel Paralubes Group II plant in Westlake, near Lake Charles, Louisiana, may help loosen up the narrow supply and demand balance. The plant restarted last week and is currently producing one grade at a time, sources familiar with the producer’s operations said. Each product run was anticipated to take 8 to 10 days, and then the line will switch products. It will likely take a whole month before the supplier has manufactured all grades, and by then, the tanks will be relatively low. The company was heard to be taking orders and starting to ship base oils by truck. There was no producer confirmation forthcoming about the status of its operations.

The plant shutdown, which had been caused by Hurricane Laura in late August and further complicated by Hurricane Delta earlier this month, ended last week, while the Phillips 66 refinery at the same location, which supplies Excel Paralubes with feedstock for base oil production, restarted about two weeks ago.

A couple of other producers admitted that they had been running plants at reduced rates in response to the demand destruction brought about by COVID-19 lockdowns since earlier in the year. Suddenly, a combination of factors, including an uptick in demand, increased export activity, and weather-related plant shutdowns, had conspired to bring about a swift tightening of the domestic supply and demand ratio and producers were trying to catch up, they said.

While the plant outages were mostly affecting the API Group II segment, Group I grades have also tightened and most cuts were reported in short supply, with bright stock in particular showing scant availability, not only in the U.S., but in Europe as well. It was heard that European traders had hoped to book cargoes from the U.S., but had been unable to do so. There have also been inquiries to move Group I and II cargoes to India in November, but no transactions had been reported by the time of writing.

A domestic producer, who operates a large naphthenic plant and offers a bright stock cut, was heard to have suffered a production hiccup that had affected bright stock output, but this could not be confirmed with the supplier.

Customers were heard to be searching the market for alternative bright stock supplies, but had come out empty-handed, sources said.

A major Group I and II U.S. Gulf producer was heard to have shipped significant quantities of base oils to its facilities in Singapore, as one of the producer’s plants at that location has been idle since June, with no restart date having been determined.

Demand for Group I light grades from Mexico has also placed pressure on this corner of the market, with a steady flow of these cuts making their way to the neighboring nation for fuel blending.

Group III supplies, which are mostly imported into the U.S. from South Korea and the Middle East, have also tightened as a number of consumers started blending Group III cuts into their formulations due to the scarcity of other grades.

A majority of grades underwent upward market price adjustments of between 3 and 10 cents per gallon, with bright stock climbing by 15 cents/gal due to its scant availability this week.

On the naphthenic front, the light grades were also described as limited and demand as healthy, despite the recent market upheaval caused by the pandemic. Some paraffinic base oil end-users have started to blend naphthenic base oils in applications where this is possible, and this has contributed to a further tightening of this segment.

Cross Oil implemented a price increase on its pale oils last week, and other suppliers were monitoring market developments and crude oil prices to decide on an action plan.

The tight scenario for both paraffinic and naphthenic grades could change in one or two weeks, as base oil demand in general tends to decline in November and December, ahead of the clearing of inventories and the year-end holidays.

There were also rumblings that the U.S. Presidential elections scheduled on Nov. 3 could impact market activity in the coming weeks.

Upstream, crude oil futures started the week lower on a resurgence of coronavirus cases and new restrictions on travel in Europe, which threatened to dampen oil demand, while Libya’s increased production was expected to exacerbate the supply glut.

On Tuesday, Oct. 27, December WTI futures settled at $39.57 per barrel on the CME/Nymex and the front month had closed at $41.46/bbl on Oct. 20.

Brent futures for December delivery closed at $41.20/bbl on the CME on Oct. 27, from $43.16/bbl futures on Oct. 20.

Light Louisiana Sweet crude wholesale spot prices settled at $39.99/bbl on Oct. 26 and had closed at $42.04/bbl on Oct. 19, according to the Energy Information Administration.

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.

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