U.S. Base Oil Price Report


Tropical Storm Harvey wreaked havoc along the coastline of southern Texas, snarling transportation of base oils while also forcing the shutdown of several area base oil plants.

The devastating storm turned into a hurricane with winds of 130 miles per hour when it made landfall in Corpus Christi, Texas, on Friday, Aug. 25, but was later downgraded to a tropical storm by mid Saturday.

Although the hurricane battered the coast with gale-force winds, it was the heavy rain and flooding that caused most of the damage, driving thousands of residents from their homes and bringing most industrial and commercial activity to a halt.

Several refineries and petrochemical plants were closed by yesterday, including ExxonMobils Baytown, Texas, refinery, which houses an API Group I//II base oil plant; LyondellBasells Group II and naphthenic base oils plant in Houston and Valeros naphthenic base oil plant in Three Rivers, Texas. In addition, Reuters reported that Motiva was preparing to close its giant Group II plant in Port Arthur, Texas. (For more information, see Hurricane Shutters Base Oil, Additive Plants in this issue of Lube Report).

Calumet Dickinson Refinings lubricants plant in Dickinson, Texas, also halted operations. The unit produces white mineral oils, compressor lubricants and natural petroleum sulfonates, and has aggregate feedstock throughput capacity of approximately 1,300 b/d.

The storms full impact on the regions infrastructure will not be known for days as the rain continues, and it was not possible to predict when the refineries and plants would be restarted, as damage assessment can only be done once weather conditions improve.

Aside from production outages, the movement of base oils was likely to be impacted by port closures and the suspension of truck and railway traffic during and after the storm, sources said.

Houston Ship Channel pilots stopped boarding both incoming and outgoing vessels on Friday and the Freeport Harbor Channel is also closed to all traffic. The ports of Freeport, Galveston, Texas City, and Houston were also closed, according to the U.S. Coast Guard website.

Product will tighten up quickly and likely cannot ship out of south Texas plants even if it is in the tank. We were notified on Friday the rail service Houston to Laredo is completely shut down, and truck service will be close to nonexistent for now, a market source noted.

The transportation disruptions were also expected to affect product movements at Brownsville, Texas, which is an important link between the road networks of Mexico and the Gulf Intercoastal Waterway of Texas.

In terms of Hurricane Harveys direct effect on base oil availability and pricing, it was too early to ascertain the full extent of the storms impact, but market players expected prices to be exposed to upward pressure on account of plant closures and reduced supply.

On Friday last week – just hours before the hurricane made landfall – Chevron had announced a posted price decrease, joining a group of other base oil suppliers who had implemented price cuts earlier this month.

Chevron communicated that the company was lowering its API Group II 100R and 220R cuts by 10 cents per gallon, and its 600R cut by 15 cents/gal, effective Aug. 30.

Chevrons price reduction comes on the heels of similar revisions by Motiva, Flint Hills Resources, Phillips 66 and ExxonMobil.

However, given the current conditions on the U.S. Gulf, participants wondered whether producers would rescind the decreases, as the market was likely to become tight following the production outages.

Harvey also caused a surge in gasoline prices and a fall of more than three percent in U.S. crude oil values.

Crude futures settled at their lowest level in more than a month on Tuesday as refinery shutdowns continued to feed concerns about a reduction in oil demand.

On Tuesday, Aug. 29, West Texas Intermediate futures settled on the CME/Nymex at $46.44 per barrel, down $1.20/bbl from $47.64 per barrel on Aug. 22.

Light Louisiana Sweet wholesale spot prices closed at $49.95 per barrel on Aug. 28, compared with $50.57 per barrel on Aug. 21, according to data from the U.S. Energy Information Administration.

Brent was trading at $52.00/bbl on the CME on Aug. 29, up 13 cents/bbl from $51.87/bbl on Aug. 22.

Low sulfur vacuum gas oil traded at Oct WTI plus $11.50/bbl ($58.07/bbl) and high sulfur VGO was at crude plus $9/bbl ($55.57/bbl) on Aug. 28. In comparison, low sulfur VGO was at $56.87/bbl, and high sulfur VGO was at $56.37/bbl on Aug. 21, according to PetroChemWires Daily Refinery Focus.

Historic U.S. posted base oil prices and WTI and Brent crude spot prices are available for purchase in Excel format.

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