U.S. Base Oil Price Report


Output disruptions and transportation issues continue to affect the base oils business in the aftermath of Hurricane Harvey, which hit the U.S. Gulf Coast last week, leaving more than 60 dead and a path of destruction in its wake.

The Category 4 hurricane, which was downgraded to a Tropical Storm after it made landfall in Corpus Christi, Texas, on Aug. 25, not only caused devastation in that state, but also in parts of Louisiana as it made a second landfall near Cameron on Aug. 30.

Although rains stopped last week, large areas around Houston and Lake Charles, Louisiana – where several refineries and base oil plants are located – are still under water.

In Texas, a number of refineries and base oil units halted operations last week due to flooding, including ExxonMobils API Group I//II base oil plant in Baytown; LyondellBasells Group II and naphthenic base oil plant in Houston; Valeros naphthenic base oil plant in Three Rivers, and Motiva’s Group II unit in Port Arthur.

Sources said that ExxonMobil’s refinery in Baytown was in the process of restarting this week.

LyondellBasells naphthenic production remains idled for the time being since the company is having difficulties securing its normal supply of crude oil, said a source familiar with the producers operations.

Some crude oil is trickling into the unit at the moment, but it is not enough to keep the plant running. The producer hopes to build up enough feedstock by the end of the week to resume production. In the meantime, supplies can be shipped to truck customers out of the plant from existing inventory, the source noted.

Motivas refinery in Port Arthur was expected to reach 40 percent of its production capacity by the end of the weekend, the company said in a statement. Currently, the unit is in the final phases of equipment assessments and the initial phases for refinery start-up. The base oil unit has not restarted yet, according to sources.

Valeros Three Rivers plant was heard to be still shut down.

Market participants also voiced concerns about operations and logistics at other base oil plants along the U.S. Gulf coast.

Calumets Shreveport, Louisiana, Group I and II plant was running at normal rates, but base oil production at the companys Princeton, Louisiana, naphthenic unit was cut back by a small percentage due to a slight shortage of incoming crude, a source said.

A number of suppliers have notified customers of potential delays in shipments on account of port and road closures, and the impaired movement of trucks and railcars in the region.

The rail service is still an issue, and we are awaiting an update today to forecast when it might resume in the area, a supplier said.

Phillips 66 communicated to customers the potential for delays in product transportation due to road, rail and port issues.

It was heard that Chevrons plant in Pascagoula, Mississippi, was running at full rates and there were no transportation issues noted. The producer had reportedly taken its rail fleet out of the Houston area before the storm, and shipments out of Pascagoula continued unabated, according to market sources.

Chevron was also planning to support its operations with product from the companys Richmond, California, plant, should transportation out of Pascagoula suffer any disruptions due to rail traffic congestion.

Railway operator Union Pacific said repairs had been completed between Houston and Longview, Texas, over the weekend, and service between Chocolate Bayou and Angelton, Texas, and between Houston and Beaumont was expected to be restored this week. A bridge connecting the rail line from north of Houston to Shreveport, Louisiana, was destroyed; repair work was expected to last a month.

Union Pacifics Baytown branch line reopened on Sep. 4, bringing service to petrochemical plants in Mont Belvieu and Baytown. The rail company said flooding continued to impede track repairs in the Beaumont, Orange and Port Arthur areas.

An industry source said that transportation to Mexico had been affected by damage to a rail crossing on the line to Brownsville, Texas, but repairs were expected to be completed by Tuesday or Wednesday.

Ergon communicated to its customers that operations at its naphthenic refinery in Vicksburg, Mississippi, and paraffinic refinery in Newell, West Virginia, had not been affected by Hurricane Harvey, but warned that there could be some shipment delays nonetheless.

As the companys export terminal in Houston has been temporarily closed, some minor delays in the vessel program can be expected. However, this should not impact Ergons capability to timely supply international customers. Ergon will continue to closely monitor the situation and keep customers informed of any changes, the company said in a statement.

Meanwhile, vessel traffic and port operations were slowly being restored. The U.S. Coast Guard gave permission Thursday for daytime traffic to resume at the ports of Corpus Christi, Texas City, Galveston, Houston and Freeport.

PetroChemWire reported that the Coast Guard had also lifted certain restrictions to vessel traffic on the Houston Ship Channel and the Gulf Coast Intracoastal Waterway, but there were still constraints on the inner portion of the Ship Channel. The backlog of vessels trying to enter the Ship Channel was slowly beginning to ease.

The strong reverberations of the disaster were not only felt in the domestic base oil market, but were also affecting conditions in Europe, Asia and the Americas.

Many of the plants along the U.S. Gulf that temporarily halted operations are regular exporters to Central and South America.

The Brazilian market as well as other South American markets are huge importers of base oils from the U.S., so depending on the timing of the U.S. plants restarting [base oil operations], the impact can be dramatic in the near future, noted Claudio Pereira da Silva, director of Brazilian consulting firm LubeKem.

Some of the biggest blenders in Brazil were heard to be checking the market for alternative sources of base oils, mainly for bulk cargoes of Group II 220N, and also for combined cargoes of 220N and 600N.

On Tuesday, U.S. participants were keeping a watchful eye on Hurricane Irma, a Category 5 storm which threatened to slam into northeastern Caribbean islands and Puerto Rico by Wednesday, before possibly turning towards Florida.

Upstream, crude futures surged by more than 2 percent on Tuesday as more U.S. refineries and pipelines started to process oil and fuel. Hurricane Harvey had disrupted about 20 to 25 percent of U.S. refining capacity.

On Tuesday, Sep. 5, West Texas Intermediate futures settled on the CME/Nymex at $48.66 per barrel, up $2.22/bbl from $46.44 per barrel on Aug. 29.

Light Louisiana Sweet wholesale spot prices closed at $51.40 per barrel on Sep. 1 (there was no trading on Sep. 4 due to the Labor Day holiday), compared with $49.95 per barrel on Aug. 28, according to data from the U.S. Energy Information Administration.

Brent was trading at $53.38/bbl on the CME on Sep. 5, up $1.38/bbl from $52.00/bbl on Aug. 29.

Low sulfur vacuum gas oil traded at Oct WTI plus $14/bbl ($61.29/bbl) and high sulfur VGO at crude plus $13/bbl ($60.29/bbl) on Sep. 1. In comparison, low sulfur VGO was hovering at $58.07/bbl, and high sulfur VGO at $55.57/bbl on Aug. 28, according to PetroChemWires Daily Refinery Focus.

For additional information about the impact of Hurricane Harvey on the base oils and lubricants industry, see Refineries Move to Reopen.

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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