San Joaquin Refining joined the group of naphthenic base oil producers who announced increases at the end of March. Most paraffinic producers had also implemented markups at that time, and no fresh initiatives surfaced this week. The steeper base oil prices and production costs triggered another round of downstream increases for lubricants, additives and other finished products.
San Joaquin informed its customers that the company would be raising the price of its naphthenic base oils by 15 to 40 cents per gallon, depending on product and location, effective April 13. The company explained that the adjustments were prompted by changing market conditions including heightened demand and short supply, as well as increased production costs.
Previously, Cross Oil, Calumet and Ergon had announced increases of 20 cents/gal for naphthenic oils, which were implemented on March 23 in the case of Cross Oil and Calumet, and on April 5 in Ergon’s case.
On the paraffinic front, producers had raised posted prices by 20 to 55 cents per gallon between March 19 and April 1, and no further movements were reported this week.
Ongoing operating rate reductions at various refineries, planned and unplanned shutdowns since the third quarter of 2020, and healthy demand have all contributed to a tightening of supply of most base oil grades. The heavy viscosities and bright stock were particularly snug, sources emphasized.
Firm crude oil and feedstock values also offered support to the higher base oil price indications. While prices have come off of recent highs, numbers have shown a steady climb since the beginning of the year.
The steeper base oil prices prompted lubricant, additives, grease and other finished products manufacturers to announce price increases of their own to offset the higher costs of raw materials and other factors such as freight rates. A majority of manufacturers announced increases between 3% and 15%, to be implemented in late April and May.
Omni Industries will be increasing the price of all lubricants, greases and chemicals by up to 15%, with an effective date of May 7. The company explained that the adjustment was due to the continued increases in base oils, additives, resin, corrugated, steel and freight.
Chemlube International also announced an increase of up to 15%, effective May 5.
Advanced Lubrication Specialties, Old World Industries, Smitty’s Supply, Amalie, Cam2 International, Warren Oil and a number of other manufacturers were reported to have announced similar adjustments.
Among the majors, it was heard that Chevron had communicated a general price increase of branded lubricant products – excluding coolants and fuel additives – of up to 12%, with the increases going into effect on May 17. Sopus (Shell) was reported to have announced a 6% increase, effective May 3.
These adjustments come on the heels of a previous round of markups that was mostly implemented during the first half of April and had largely emerged in response to base oil price increases.
Some finished products manufacturers said that they had been forced to suspend production for a brief time, as they had been unable to secure base oils and other chemicals due to disruptions to the supply chain back in February.
At that time, a number of base oil plants and petrochemical plants had suffered unexpected outages caused by freezing temperatures in Texas and several other states. According to reports, ExxonMobil and Motiva had declared force majeure on base oil production and placed customers on allocation. Both producers were heard to have lifted these measures as their plants were running well, according to sources, but this could not be confirmed with the producers directly.
Additionally, Calumet and HollyFrontier’s base oil plants had been undergoing routine turnarounds when the storm hit, causing some damage to the facilities and delaying their restart by almost a month. Both producers have resumed production and have ramped up rates, but shipment delays were still expected as the suppliers were catching up with orders.
On the naphthenic side, Cross Oil had also started a turnaround in February and had declared force majeure when its plant was affected by the extreme winter weather and was forced to shut down one week ahead of the planned maintenance program. The company announced that it had lifted the force majeure on April 8.
A second naphthenic producer had suffered a production setback during the winter storm in February and had remained off-line for about a month, but had not declared force majeure. The supplier then had another unplanned shutdown in late March, but was heard to have restarted production last week.
A number of turnarounds were still scheduled over the next few weeks. Ergon’s paraffinic API Group I and Group II refinery in Newell, West Virginia, was slated to begin a 30-day turnaround on April 9. The company hoped to manage product inventories so as to minimize supply disruptions during the turnaround period and startup.
Market sources also said that Paulsboro would have a brief turnaround lasting 10 days at its Group I unit in Paulsboro, New Jersey, in mid-April.
A rerefiner was also expected to shut down its plant in Ohio for a short turnaround sometime in the second or third quarter of the year.
There were also ongoing and imminent turnarounds taking place at large facilities in Europe and Asia, which further limited import options for many consumers, particularly in the Group III segment.
A majority of buyers continued to take as much product as possible under contract and tried to forego purchasing material in the spot market as there was not much availability and prices have skyrocketed. Some of the pressure on prices coming from the crude oil and feedstocks side has weakened given the recent slip in oil values.
Supply to meet spot export inquiries was also very limited, with only sporadic transactions being finalized into India, Mexico, Brazil and other South American destinations.
Base oil availability should improve once plants restart, following the current turnarounds. Refineries will likely ramp up rates in response to increased fuel consumption in the U.S. as the population’s mobility picks up and the country heads into the summer driving season, and more businesses re-open on the back of a widely implemented COVID-19 vaccination campaign. However, most participants did not expect a noticeable improvement in base stock supply levels until the summer.
Upstream, crude oil futures climbed nearly 2% on Monday as there was fresh optimism about the pace of coronavirus vaccinations in the U.S. and after the Yemen-based Houthi movement said it fired missiles on Saudi oil sites, increasing tensions in the Middle East. Gains were capped by concerns about the pausing of the Johnson’s & Johnson’s vaccine and increasing coronavirus cases in some states.
Values have been largely range-bound over the last three weeks because expectations about an economic recovery in the U.S. were offset by worries about surging infections in Europe and a slow vaccine rollout in other parts of the world.
On Tuesday, April 13, May WTI futures settled at $60.18 per barrel on the CME/Nymex, and had closed at $59.33/bbl on April 6.
Brent futures for June delivery settled at $63.67/bbl on the CME on April 13, from $62.74/bbl on April 6.
Light Louisiana Sweet crude wholesale spot prices were hovering at $61.55/bbl on April 12 and had closed at $60.88/bbl on April 5, 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.