U.S. Base Oil Price Report

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News that ExxonMobil had communicated posted price increases hit the market this week, with participants indicating that the adjustments were likely driven by the pressing supply situation and rising crude oil and feedstock values.

According to sources, ExxonMobil will be increasing the price of its API Group I 100 to 400-vis grades by 20 cents per gallon, its 600-vis grade by 30 cents/gal and its bright stock by 40 cents/gal. The producer’s Group II EHC 65 cut will be lifted by 20 cents/gal and its Group II+ EHC 45 cut by 30 cents/gal, all with an effective date of March 19.

This increase comes on the heels of a round of paraffinic and naphthenic price hikes that raised values by 25 to 45 cents per gallon, depending on the grade and the producer, between Feb. 19 and March 3.

Despite the restart of refineries and base oil plants in Texas following brief shutdowns brought about by winter storm Uri – which caused utility outages and structural damages – demand continued to outpace supply, leading to critically low inventories for most suppliers.

Motiva and ExxonMobil, whose refineries had originally shut down during the storm, forcing them to declare force majeure on base oil production, have restarted refining operations and most base oil plant output. However, it was heard that Motiva would not be restarting the unit that manufactures the Group II 100-vis grade until March 21. Motiva’s customers continued to be on 60 percent allocation, sources said. The production information could not be confirmed with the producers directly as they do not comment on operations.

The unplanned extension of routine turnarounds at two facilities – Calumet’s Group I and Group II unit in Shreveport, Louisiana, and HollyFrontier’s Group I plant in Tulsa, Oklahoma – partly exacerbated the tight supply situation, particularly as far as availability of Group I cuts was concerned. Both plants were expected to be restarted this week, sources said.

The Group I segment has been snug since the end of the third quarter of last year, and the situation has only worsened, with bright stock becoming a much sought-out commodity as it there were almost no extra volumes available and it is a difficult grade to replace.

The Group II sector has not fared much better, given that demand has been healthy and requirements have increased because some blenders are utilizing Group II grades in lieu of Group I cuts whenever possible. Any minimal volumes that were not going into contract customers were booked for export transactions, with at least one cargo moving to India.

Similarly, Group III demand has spiked because consumers are seeking an alternative for those grades that are difficult to find, especially for automotive applications, and are resorting to using the pricier premium grades as an alternative.

The tight supply situation has become so dire, that some blenders have had to either temporarily halt production of finished products, or placed customers on allocation. Aside from the base oil shortage, some manufacturers are not able to secure additives and chemicals given the recent outages of petrochemical plants, including those that manufacture polyalphaolefins, which temporarily halted operations in Texas, but were heard to have restarted. Petrochemical producers such as ChevronPhillips and Celanese were heard to have resumed operations, Opis Petrochemwire reported, but shipments may be suffering delays. Still, a number of manufacturers said production of finished lubricants was proceeding at normal rates.

Given that a majority of base oil producers have had to restrict sales to contract customers and very little spot product was available, spot prices have skyrocketed, widening the delta between posted prices and spot indications. This has placed pressure on producers to adjust posted prices again, following three previous rounds of increases since last December, sources noted.

Soaring base oil prices in other regions, particularly Asia, amid a dearth in spot availability were also said to be impacting prices in the U.S. Base oil prices in Asia were hovering at historic highs. A heavy turnaround schedule at Asian base oil plants over the next two months has partly precipitated the price jumps, and has also limited the spot volumes available to move to other regions.

Likewise, in the U.S., a number of plants were 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 hopes to manage product inventories so as to minimize supply disruptions during the turnaround period and startup.

Avista Oil completed a brief turnaround which started on March 8 this week. Another rerefiner was slated to perform a short maintenance program in March as well.

On the naphthenic base oils side, the supply/demand balance is also strained, with the heavy grades secured by blenders for those applications that typically require paraffinic counterparts, which are currently unavailable.

A majority of naphthenic producers implemented 30 cents/gal increases between mid-February and early March, and were evaluating further adjustments in view of the current market conditions.

There were several plant shutdowns taking place in this segment of the base oils market as well.

Cross Oil’s naphthenic base oil plant in Smackover, Arkansas, was undergoing a month-long maintenance program which began on Feb. 25 and was anticipated to meet most of its contractual commitments during the outage.

Calumet’s naphthenic base oil plant in Princeton, Louisiana, shut down for a brief period due to the sub-zero temperatures in mid-February, but resumed production two weeks ago.

Valero had reportedly taken its Three Rivers, Texas, plant off line due to the severe winter weather about a month ago, and it appeared that the unit had not been restarted yet, but this could not be confirmed with the producer.

San Joaquin Refining completed a turnaround at its naphthenic base oil unit in Bakersfield, California, in February and had placed customers on allocation during the shutdown.

The sharp rise in base oil and feedstock prices have prompted blenders to initiate increases between 3% and 20%, scheduled to be implemented in April. Not all finished lubricant producers are able to implement increases due to specific terms in their contracts that only allow quarterly adjustments. A number of independent manufacturers were also hesitant to implement price markups as the major producers have not yet announced additional hikes, but were concerned that if they were unable to implement increases, they would be selling finished lubricants at a loss. “I’ve never seen so many base oil price increases in such a short period of time,” a source commented.

Upstream, crude oil futures showed gains on Monday, but retreated on Tuesday on renewed worries about spikes in coronavirus cases, the suspension of the use of the Astra-Zeneca vaccine in Europe – which cast doubts that the region would recover from the pandemic soon – and a strengthening dollar.

Analysts said the oil market has entered a period of consolidation following a rally that has seen both the ICE Brent and light sweet crude markers jump more than 30%, S&P Global Platts reported.

On Tuesday, March 16, April WTI futures settled at $64.80 per barrel on the CME/Nymex, and had closed at $64.01/bbl on March 9.

Brent futures for May delivery settled at $68.39/bbl on the CME on March 16, from $67.52/bbl on March 9.

Light Louisiana Sweet crude wholesale spot prices were hovering at $67.66/bbl on March 15 and had closed at $67.18/bbl on March 8, 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.

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