The base oil market awoke to news on Tuesday that ExxonMobil would be increasing its paraffinic base oil prices, while on the naphthenic side, Ergon and Calumet communicated hikes on pale oils, and Cross Oil postponed the implementation of its initiative.
According to sources, ExxonMobil will be raising the posted prices of its API Group I light and mid-viscosity grades by 15 cents per gallon, its heavy grades by 25 cents/gal, and its bright stock by 30 cents/gal. On Group II and II+ products, the producer will lift its light and mid-viscosity grades (EHC65 and EHC45) by 15 cents/gal and its heavy-vis grade (EHC120) by 25 cents/gal. (The latter cut is currently not included in the price table below). All these increases will become effective on Aug. 10. The Price Table below will be revised to reflect these increases next week when they go into effect.
In the naphthenics camp, Ergon announced a 25 cents/gal boost to all of its naphthenic base oils, effective July 31.
Along similar lines, Calumet communicated an increase of 25 cents/gal on all of its naphthenic grades, also to be implemented July 31.
On June 30, Cross Oil had communicated increases of 20 and 25 cents/gal for its naphthenic base oils, stating they would go into effect on July 16. The company has now postponed those changes to July 31. Viscosity grades of 30-300 Saybolt Universal Seconds will be marked up by 25 cents per gallon, while grades of 500-3500 SUS will be lifted by 20 cents/gal.
The increases for pale oils emerged against a background of rising crude oil and feedstock prices and tightening supply – particularly of lighter grades – despite a slowdown in some segments such as process oils. Fresh inquiries from Mexican blenders and renewed buying interest from some domestic customers helped achieve more balanced positions, suppliers explained.
Other producers and rerefiners were heard to be evaluating market conditions and mulling potential price revisions.
The price hikes communicated this week came as a bit of a surprise to some participants, as the market continued to be afflicted by uncertainties stemming from the coronavirus pandemic and its negative effects on downstream lubricant applications and fuel consumption. However, steep feedstock prices continued to pressure margins.
While the month of June had brought a strong uptick in base oil orders and a tightening of domestic supplies as industries and businesses resumed operations, the improved activity levels have since slowed down slightly as new spikes in coronavirus infections have led to a reversal of reopening measures.
Industry sources explained that the renewed closings impacted various downstream segments in different ways. Lubricant sales into the agricultural and heavy-duty transportation segments were still very healthy, while aviation and some automotive and industrial applications had weakened, although those industrial operations that cater to essential services were still seeing strong uptake.
A majority of base oil producers reported tight inventories, the result of the recent increase in demand combined with reduced operating rates at most facilities since the start of the second quarter. Group I heavy-viscosity grades and bright stock and light-vis Group II oils were particularly snug, sources reported. “Our Group II liftings have never been stronger,” a large buyer admitted about current requirements.
A profusion of export shipments in June also contributed to the tighter conditions. Buying interest for United States base oils from Mexico, India, Africa and Brazil helped keep inventories well-balanced against supply, although some players expressed concern that this buying interest could not be sustained through August and September.
A few cargoes were lined up for August lifting to India, but a number of parcels remained unsold, according to sources. Mexican demand was expected to remain steady as consumers utilize light-vis grades as an economic alternative for fuel blending.
Additionally, given that the U.S. Gulf Coast – home to a majority of the nation’s base oil plants – may be affected by a busy hurricane season, most suppliers and buyers have padded inventories in case of output disruptions. Incidentally, Hurricane Hanna made landfall in Texas, U.S., over the weekend, but there were no reports of damage to base oil facilities at the time of writing, and Hanna has been downgraded to a tropical storm.
Upstream, crude oil futures edged down on Monday on escalating tensions between the U.S. and China, and a continued increase in global coronavirus cases. Prices rose in early trading Tuesday on prospects of the U.S. Congress passing a new stimulus package, but then retreated on concerns about the rising number of coronavirus cases in several states, and the likelihood that Democratic opposition to Republicans will delay passage of the economic aid package. Expectations that OPEC+ would start to ease on output curtailments also added to the downward pressure.
On Tuesday, July 28, September WTI futures settled at $41.04 per barrel on the CME/Nymex, after closing at $41.96/bbl on July 21.
Brent futures for September delivery closed at $43.22/bbl on the CME on July 28, down from $44.32/bbl on July 21.
Light Louisiana Sweet crude wholesale spot prices settled at $42.66/bbl on July 27, little changed from $42.13/bbl on July 20, 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.