U.S. Base Oil Price Report

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Despite the upcoming Thanksgiving holiday on Nov. 26 and the typical seasonal slowdown as the year-end approaches, demand in the U.S. base oil market remained fairly healthy, and this offered support to price increases, with Petro-Canada joining two previously announced initiatives this week. However, it remained to be seen whether consumption levels hold in December.

The steady base oil consumption and activity in downstream lubricant markets seen over the last several weeks have contributed to a tightening of availability, offering support to a number of increase announcements. So far, these announcements seemed to be limited to the API Group II+ and Group III segments.

Petro-Canada notified its customers that the company would be increasing its Group II+ grades by 20 cents per gallon and its Group III base oils by 25 cents/gal, with an effective date of Nov. 23. At this time, there will be no change on the producer’s Group II base oils from Mississauga, nor on its Group I base oils from Tulsa. 

Along similar lines, Phillips 66 and SK Americas announced increases for their Group II+ and Group III base oils last week. Phillips 66 increased its Group II+ and Group III posted prices by 25 cents per gallon on November 18.

SK lifted the price of its Group II+ 70N grade by 20 cents/gal, its Group III 4 cSt base oil by 20 cents/gal, and its 6 cSt and 8 cSt grades by 30 cents/gal, all with an effective date of Nov. 23.

Additionally, sources also reported that they had received increase notifications for imported base oils from Abu Dhabi National Oil Co. and Bahrain Petroleum Co.

A majority of base oil cuts remain in limited supply for spot transactions, as producers prioritize contract obligations, leaving little available for spot deals. Demand from Latin America, especially Mexico and Brazil, was described as robust, and a few United States cargoes have been shipped to these countries.

Mexican imports of light grades used as fuel extenders declined in recent months as importing diesel from the U.S. had become more advantageous. However, as diesel prices have increased in the U.S. and this product is also subject to import duties in Mexico, base oils once again proved to be an attractive alternative.

India has also been one of the main destinations for spot shipments, although volumes had dropped since September due to the lack of extra supplies in the U.S. This situation seemed to be gradually changing as a Group II producer has resumed production on the U.S. Gulf Coast – following a hurricane-related unplanned outage – and other producers have increased production rates. There were reports of approximately 25,000 metric tons of Group II cuts lined up for shipment to India in December.

Nevertheless, a majority of refiners continued to run units at reduced rates due to tepid demand for fuels and weak distillates values and expectations of further drops in consumption in December. By comparison, base oil margins have climbed to their highest margins in years, sources said.

Group I and II producer Calumet expects to have little spot availability over the next couple of months as it hopes to build inventories ahead of a turnaround at its base oils plant in Shreveport, Louisiana, in February. The producer plans to continue to meet contractual obligations during the shutdown.

The ongoing shutdown of a Group I facility in Singapore has resulted in numerous intra-company shipments of Group I and II base oils from the U.S. to that country to feed downstream lubricant operations, adding to the current domestic tightness.

On the naphthenics front, Cross Oil communicated that it had implemented its announced 20 to 25 cents/gal increase on a number of accounts as previously planned, but that it would be adjusting all prices that the company has not already moved on Dec. 1. “This is not an additional increase, it is the execution of the prior announcement that has been delayed,” a company source explained.

Cross Oil’s naphthenic base oil prices ranging in viscosity from 60 Saybolt Universal Seconds to 300 SUS would be adjusted up by 25 cents/gal, and those with viscosity from 500 SUS to 3500 SUS would be raised by up to 20 cents/gal.

The company also cited several factors as the drivers of the increase, including the continuing cost of handling refinery by-products in a very weak distillate market, and the recent upward movement in the cost of crude and crude handling.

Other naphthenic producers were heard to be evaluating market conditions and were likely to reassess pricing in December.

The naphthenic base oils segment has become more strained as many end-users had rushed to acquire product ahead of potential increases. With some of the plants running at reduced rates, availability of both the light and heavy grades has declined.

Crude oil futures rose to their highest levels since March this week, as sentiment was buoyed by the progress obtained on coronavirus vaccines – despite the fact that there continued to be increases in infections in many parts of the world – and optimism due to the beginning of the transition of power in the White House.

On Tuesday, Nov. 24, January 2021 WTI futures settled at $44.91 per barrel on the CME/Nymex and had closed at $41.43/bbl for December futures on Nov. 17.

Brent futures for January delivery settled at $47.86/bbl on the CME on Nov. 24, from $43.75/bbl on Nov. 17.

Light Louisiana Sweet crude wholesale spot prices settled at $44.31/bbl on Nov. 23 and had closed at $42.34/bbl on Nov. 16, 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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