The base oils market remains extremely tight, even as refineries resume operations following unplanned shutdowns caused by freezing weather along the United States Gulf Coast in mid February. A vast majority of paraffinic and naphthenic producers have implemented price increases, while spot indications also continued to rise due to the lack of supply for spot transactions.
Base oil producers implemented a round of posted price increases that raised values by 25 to 45 cents per gallon, depending on the grade and the producer, between Feb. 19 and March 3. This round came on the heels of two previous initiatives since last December.
The price hikes were fueled by the tight supply situation and climbing crude oil and feedstock prices. Base oil availability was anticipated to remain strained into April, even though those refineries that had shut down due to the severe weather conditions in Texas were in the process of resuming production.
Sources reported that Motiva and ExxonMobil had restarted their refineries and had achieved normal operations over the weekend. According to sources, Motiva and ExxonMobil had not yet lifted their force majeure and had placed base oil customers on 60%-80% allocation, given the unexpected output disruptions.
Motiva operates an API Group II and Group III plant in Port Arthur, Texas, and it was heard that the units that make the 600 and 220-vis grades had been restarted over the weekend, but the unit that manufactures the 100-vis grade was not expected to resume production until March 21. Motiva’s customers continued to be on 60 percent allocation, sources said.
ExxonMobil operates a refinery in Baytown, Texas, which houses a Group I and Group II/II+ base oils unit. While the refinery has been restarted, it could not be ascertained whether the base oil units had achieved normal output levels at the complex.
The production information could not be confirmed with the producers directly as they do not comment on company operations.
There were reports that other producers along the Gulf Coast had also suffered production hiccups due to power outages caused by the winter storm, and at least one additional supplier has also placed buyers of the heavy grades on allocation.
The unplanned shutdowns exacerbated an already tight supply and demand scenario, as numerous producers had been running refineries at trimmed rates and inventories had been lean throughout the year since the start of the COVID-19 pandemic.
To make matters worse, a couple of plants that were undergoing routine maintenance have not been able to be restarted due to the cold snap that affected large swaths of the country.
Calumet was heard to have extended a turnaround at its Group I and Group II unit in Shreveport, Louisiana, for one to two weeks, as the process had been interrupted by the adverse weather, but the maintenance was on track to be completed soon, sources said.
Similarly, it was heard that the restart at HollyFrontier‘s Group I plant in Tulsa, Oklahoma, had been delayed from its original restart date, following a routine turnaround which began in early February.
A number of plants were also scheduled for maintenance in the next few weeks. Ergon announced that its paraffinic refinery in Newell, West Virginia, would begin a 30-day turnaround on April 9. The company is working diligently to manage product inventories in an effort to minimize supply disruptions during the turnaround period and startup. “During this planned maintenance event, the company will implement several reliability projects to further improve security of supply to our customers,” Ergon noted in a statement.
Avista Oil was also scheduled to start a turnaround on March 8, but the shutdown was only expected to last four to five days. Another rerefiner was slated to perform a brief maintenance program in March as well.
The curtailed supply levels have led suppliers to focus on domestic contract business, leaving very little product for spot export transactions. There were reports of a 5,000-metric ton cargo of Group II light-viscosity grades having been concluded for shipment to India, but this parcel seemed to be an exception as other product enquiries had gone unfulfilled.
Mexican and Brazilian buyers were feeling the effects of the strained supply conditions in the U.S. as they rely heavily on imports due to ongoing reduced production levels at local base oil plants.
On the naphthenic base oils side, supply has also tightened because some blenders have resorted to utilizing heavy grades as a substitute for bright stock and demand in general was deemed healthy. Ongoing and planned turnarounds also left a dent on supply.
Calumet’s naphthenic base oil plant in Princeton, Louisiana, was heard to have shut down due to the sub-zero temperatures three weeks ago, but was expected to have resumed production last weekend, according to sources.
There were also reports that Valero had taken its Three Rivers, Texas, plant off line due to the severe weather, and it appeared that the unit had not been restarted yet, but this could not be confirmed with the producer.
Cross Oil took its naphthenic base oil plant in Smackover, Arkansas, off-line for a month-long maintenance program on Feb. 25 – slightly ahead of time due to the weather disruptions – but was anticipated to meet most of its contractual commitments during the turnaround.
Consumers have been facing challenges on all fronts, not only because of the dearth in product availability, but because prices have jumped over the last few weeks. A majority of naphthenic producers have implemented 30 cents/gal increases between mid-February and early March.
Due to the dramatic rise in feedstock prices, blenders have announced additional increases between 3% and 16%, scheduled to be implemented in April. Some lubricant and additive manufacturers have also had to place customers on allocation because of the difficulties in obtaining base oils and other raw materials such as chemicals following the recent shutdowns in Texas. A majority of petrochemical plants, including those manufacturing polyalphaolefins, experienced production issues during the cold snap a few weeks ago and were only now resuming full production.
Upstream, crude oil futures strengthened on expectations of an economic recovery after the approval of a $1.9 trillion stimulus bill by the U.S. Senate and a potential drawdown in U.S. crude oil inventories, but ended lower on Tuesday on expectations that steep oil prices would dampen demand.
Brent had briefly jumped over the $70 per barrel mark for the first time since January 8, 2020, catapulted by news of a drone attack at one Saudi Arabia’s oil export terminals at Ras Tanura. The terminal was not damaged by the attacks which were allegedly launched by Iranian-backed Houthi rebels from Yemen, S&P Global Platts reported.
On Tuesday, March 9, April WTI futures settled at $64.01 per barrel on the CME/Nymex, and had closed at $59.75/bbl on March 2.
Brent futures for May delivery settled at $67.52/bbl on the CME on March 9, from $62.70/bbl on March 2.
Light Louisiana Sweet crude wholesale spot prices were hovering at $67.18/bbl on March 8 and had closed at $62.94/bbl on March 1, according to the Energy Information Administration.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
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.