U.S. Base Oil Price Report

There were signs that base oil demand had started to improve in the domestic market as coronavirus-related lockdown measures have been relaxed in most states, but the Mexican market, which typically absorbs United States surplus material, showed negligible buying appetite.

While suppliers remained skeptical that domestic activity would increase enough in the coming weeks to make up for the demand destruction seen over the last couple of months, there was hope that as more people start to drive and travel, and manufacturing activities resume, lubricant consumption would increase, resulting in heightened interest for base oils.

News about positive results in the testing of a Covid-19 vaccine was also perceived as an encouraging development, driving up stocks in Wall Street and boosting consumer confidence.

A number of base oil sellers said that they had seen a jump in demand during the first few days after the reopening of business, but the interest had ebbed since then.

Others noticed an increase in sales in the latter part of the week. "After the increase in gasoline consumption in the U.S., suddenly we had a boom in orders in the last three days," a supplier noted.

Requirements for API Group I base stocks for industrial lubricants were anticipated to increase as factories were resuming activities. "We do see parts of our business starting to show some sign of life. Many of the manufacturing plants are starting to open this week. They are saying they will start at 35 percent to make sure employees don’t come down with the virus," a source explained. Until more factories reopen with a full staff, demand for industrial oils and metalworking fluids was anticipated to remain below usual spring levels.

Some participants expected the climbing crude oil prices to drive buyers back to the market to beat a possible increase in base oil values, but prices remained under pressure. However, sources indicated that domestic spot pricing had been steady during the week, following downward adjustments granted since February due to the oversupply conditions. Suppliers said that prices were so low already, that there was no room for further revisions.

API Group I spot prices were hovering at around $1.10-1.50/gal, with bright stock heard near $2.25-2.40/gal. Group II prices were assessed at $1.05-1.30/gal.

According to sources, most pressure had been noted on Group I and II base oils, while Group III cuts appeared to have been less affected by the pandemic as a majority of product is imported into the U.S. and offers were more limited. Furthermore, if driving picks up the pace, then demand for premium base oils for passenger car motor oil should increase as well, sources said. Group III spot prices were heard near $2.05-2.20/gal for the 4 centiStoke and 6 cSt grades and at $2.10-2.25/gal for the 8 cSt cut.

Additional Group III imports from the Middle East were anticipated to make their way into the U.S. next month, as Abu Dhabi National Oil Company (ADNOC) has restarted its base oils plant in Ruwais, following an extended turnaround, and will be starting to ship product in mid-June. The company made some refinery adjustments during its maintenance shutdown that will improve the quality of its base oils, a source familiar with the company's operations said.

Some U.S. refineries have started to ramp up run rates in order to produce more gasoline as demand was rising, but base oil output was expected to remain curtailed to manage stock levels.

Most U.S. producers were in possession of hefty inventories, even after production rate cuts, and a number of markets such as Mexico and India, which are typically targets for base oils overflow from the U.S., have been fairly lifeless.

A source summed up the situation in Mexico: "Customers are saying that they do not need any product until June. We heard of some very low prices offered into Mexico, and they are still not buying [base oils]. Credit is also a problem."

Buyers in Mexico had been securing large volumes of light viscosity grades for fuel blending before the Covid-19 pandemic, with base oils exports to Mexico accounting for almost twenty percent of total U.S. base stock production in 2019, according to statistics of the Energy Information Administration.

Mexican automotive plants have halted production, but operations should resume soon, prompting an increase in lubricant demand – a situation that also applied to the U.S., where thousands of autoworkers began returning to work on Monday for the first time in weeks.

India had also been a favorite destination for significant amounts of Group II base oils manufactured in the U.S., but given the lockdown restrictions in that country, demand has plunged, while existing stocks were bulging. U.S. base oils also face strong competition from Northeast Asian suppliers who routinely export to India.

It was heard that U.S. producers were looking at export opportunities to South America and Africa, with a couple of shipping inquiries surfacing this week.

On the naphthenics front, Calumet was heard to have scheduled a routine turnaround at its 6,900 barrels per day naphthenics base oils plant in Princeton, Louisiana, in the first half of June for approximately two weeks.

The outage may help reduce the downward pressure on pale oil pricing which has been prompted by growing supply levels. This situation was thought to have been partly brought about by the restart of Ergon's naphthenic base oil plant, following an extended turnaround that had started in February.

Upstream, crude oil futures have climbed significantly, rising $10 per barrel in two weeks, as markets appeared confident that global demand for crude was picking up once again, particularly in China, where refiners have embarked on a buying spree of low-priced oil from Brazil, Oman and West Africa.

West Texas Intermediate futures settled higher on Tuesday, boosted by global supply curbs and signs of improving demand, following a volatile trading session that ended with the expiration of the June contract.

Significant production cuts by OPEC+ members, a sharp drop in the U.S. rig count, and the reactivation of some of the largest economies in the world have improved the outlook for oil, but many analysts questioned whether the rally would be sustained, as there were still enormous amounts of oil in storage.

On Tuesday, May 19, June WTI futures settled at $32.50 per barrel on the CME/Nymex, and had closed $25.78/bbl on May 12.

Brent futures for July delivery closed at $34.65/bbl on the CME on May 19, from $29.98/bbl on May 12.

Light Louisiana Sweet crude wholesale spot prices settled at $34.58/bbl on May 18 and had closed at $28.52/bbl on May 11, according to the Energy Information Administration.

Low sulfur vacuum gas oil and high sulfur VGO were trading at June WTI plus $6/bbl (or $38.50/bbl) on Tuesday, May 19, according to assessments by OPIS/PetroChem Wire.

Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.

Posted Paraffinic Base Oil Prices

May 20, 2020

PLEASE NOTE: Prices for Excel Paralubes' Group II 80N grade and SK's Group II Bright Stock have been removed from the price table as of May 6 per the companies' requests.

(Prices are FOB basis, in U.S. dollars per gallon and U.S. dollars per metric ton).

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.