U.S. Base Oil Price Report

SK Americas, Petro-Canada and Kleen Performance Products communicated price increases for their API Group II+ and Group III base oils this week, while the rest of the paraffinic producers indicated that the recently announced hikes had gone through. SK increased its Group II+/III prices by 20 cents per gallon, effective Feb. 3. The company's Group II bright stock was not adjusted as it had already been revised during the January round of increases.

Petro-Canada plans to lift its Group II+ 65 neutral and 100N by 20 cents/gal as of Feb. 5. Likewise, the producer's Group III 4centiStoke, 6 cSt and 8 cSt grades will increase by 20 cents/gal.

Kleen Performance Products communicated that the company had increased its Group II+ grades by 30 cents/gal as of Jan. 17 due to feedstock costs, specifically vacuum gas oil as impacted by the IMO 2020 regulations. Previously announced price hikes lifted Group I, II and III posted prices by 20 to 30 cents/gal - depending on the cut and the producer - and were implemented between Jan. 13 and Jan. 29. Spot availability of Group II grades was heard to have diminished on the back of a planned catalyst change at the Excel Paralubes Group II plant in Lake Charles, Louisiana, which would take the 22,200 barrels-per-day plant out of commission for most of February. The producer has built inventories to fulfill its contract commitments as scheduled. Group I supply was also fairly snug as requirements have been steady, and production of these cuts in North America is not as abundant as for Group II. Many blenders have switched to Group II grades whenever possible given availability and price advantages. In the Group III category, supply and demand were characterized as balanced-to-soft. Participants explained that if inventories started to build, then production rates would be dialed back, but this has not been the case for most suppliers. The recent increases have not had any impact on base stock demand, sources said, and with finished lubricant producers also announcing price increases to be implemented in February and March, manufacturers, blenders and compounders would be able to recover some of the steeper base oil costs. A number of suppliers have noted a pick-up in demand, but some of the orders came in before the increases were implemented. "Of course, as soon as announcements started, some customers tried to place orders to ship before the increase (which always happens)," a source commented. On the naphthenic side of the business, despite rather lackluster product requirements, supply was heard to have experienced some tightening compared to a few months ago due to an ongoing maintenance shutdown at San Joaquin's Bakersfield, Calif., refinery and an upcoming turnaround at Ergon's naphthenic base oil plant. Ergon has scheduled a routine turnaround at its plant in Vicksburg, Mississippi, starting on March 5, which will last approximately 26 days. The Vicksburg plant has capacity to produce 22,000 barrels per day of naphthenic oils, according to Lubes'n'Greases' Guide to Global Base Oil Refining. A naphthenic supplier said that customers had asked about the availability of additional product in case Ergon's turnaround caused supply shortages. "Ive already received inquiries from concerned customers who think theyll run out of inventory," the supplier noted. However, Ergon assured customers that they would not be experiencing any supply disruptions during the planned maintenance period. Additionally, it was heard that LyondellBasell had halted production at its naphthenic base oil plant in Houston, Texas, last August and the plant appeared to remain shut down for the time being, sources said. Prices on the naphthenic front were stable, but suppliers were keeping an eye on crude oil and feedstock values, which have generally been trending down over the last couple of weeks. Participants said they would wait until the typical uptick in demand starts in March, in preparation for the spring production season, and would reassess price conditions then. Buying interest from Mexico has not been particularly strong for paraffinic or naphthenic base oils as material in transit to and currently in storage in Brownsville, Texas - a hub for base oils headed to Mexico - remained plentiful, but buyers were expected to step back into the market once product cleared out. Suppliers added that the low viscosity cuts for diesel blend stock were "moving really well." Meanwhile, things do not look promising for future exports of Group II into Europe, as the current quota of material that can enter the European Union duty-free will likely not be revised. (For further details, see "Midterm Review Unlikely for Group II Quota" in the Feb. 4 edition of Lube Report EMEA). Upstream, crude oil futures regained some lost territory early on Tuesday, on hopes that OPEC+ would establish new curbs on production. However, prices declined later in the day, with West Texas Intermediate futures falling below $50 a barrel for the first time in more than a year due to concerns about reduced global oil demand triggered by the spread of the coronavirus. The outbreak is not only affecting the Chinese economy, but that of many countries that rely on Chinese parts and products to keep manufacturing operations running. Many auto plants in China have shut down because of the virus. "With the coronavirus disrupting China's supply chain, Hyundai said it was suspending production lines at its car factories in South Korea," The New York Times reported on Feb. 4. On Tuesday, Feb. 4, WTI futures settled at $49.61 per barrel on the CME/Nymex, and had closed at $53.48/bbl on Jan. 28. Brent futures for March delivery were reported at $53.96/bbl on the CME on Feb. 4, from $59.51/bbl on Jan. 28. Light Louisiana Sweet crude settled at $53.86 on Feb. 3, compared with $57.34 on Jan. 27, 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.