Base Oil Pricing Report

U.S. Base Oil Price Report

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The floods caused by Hurricanes Harvey and Irma along the U.S Gulf Coast and surrounding areas may have started to recede, but recovery efforts were expected to continue for several months, if not years. Similarly, the effects of the storms on the base oils industry were likely to be long-lasting, although not to the same magnitude.

Last week, Motiva was heard to have declared force majeure on all of its API Group II STAR base oils due to difficulties in restarting its Port Arthur, Texas, base oil plant, which suffered damage from the flooding and was forced to shut down.

Motivas customers were understood to have been placed on allocation, and sources commented that it appeared that the implementation of the plan showed variations, as allocations depended on the base oil grades, contract terms, whether the transactions were spot or contract, domestic or export, among other variables.

Motiva has assured its customers that the company was working diligently to return to normal production and supply capabilities as quickly as possible, according to sources.

Likewise, there were reports that ExxonMobil had also declared force majeure on its Group II and II+ base oil grades produced at its Baytown, Texas, refinery, and implemented an allocation program.

Sources said that ExxonMobils Group I oils were under a 100 percent allocation, and that its Group II/II+ cuts were under a much lower percentage of allocation, although details were not available.

There were also reports that ExxonMobils Group I plant was running fairly well, but that its Group II/II+ lines were only running at 50 percent capacity.

While there was no producer confirmation forthcoming, sources estimated that both the ExxonMobil and Motiva base oil plants would not be able to run at full rates for at least three to four weeks.

If Motiva is down a long time, there will be a real product shortage, a source noted, as the producer operates the largest base oil unit in the U.S., with capacity of 40,300 barrels per day of Group II base oils.

Many U.S. blenders were heard to be experiencing supply problems due to the production outages. A couple of producers commented that they had received inquiries for product from buyers who are not regular customers and who had not purchased base stocks in a while.

However, these sellers said that they may not be able to supply extra volumes as they have to ensure that they cover contractual obligations first, and their supplies were fairly tight even before the hurricanes.

There were also ongoing problems with transportation, logistics and terminal operations as a consequence of the floods.

For example, the Contanda No. 2 terminal in Houston was heard to be unable to receive barges and vessels due to a blockage on the way into the terminal, according to sources. The terminal handles base oils, biodiesel, wax, specialty chemicals, vegetable oil and other petrochemicals, according to the operators website.

Shipments are still behind schedule due to the slow return of the railcars, another source noted, adding that this was a situation affecting a number of refineries as well.

Not only were domestic consumers worried about a potential lack of availability and logistical setbacks, but Mexican buyers also expressed concern at the difficulties in sourcing product.

These problems were compounded by the fact that the Mexican producer, Pemex, had reportedly halted base oil production at its Salamanca refinery, which can produce 6,000 b/d of Group I base oils, according to sources.

Mexican blenders explained that finished lubricant prices were moving up because of the base oil market tightness and the need to import additional volumes from the U.S. and other sources at higher costs.

There are many requests coming in [from Mexico], so that tells me that supply there is limited, a U.S. supplier confirmed.

While Group I supply of most grades is snug in the U.S., there is some availability of bright stock, sources noted.

A large Group I cargo requirement from Panama was likely going to be fulfilled by a U.S. supplier at the end of September/early October, including some bright stock.

There was little discussion about base oil pricing this week, although there was talk that fuel values – including heating oil and diesel – had climbed and this, together with the tightening base oil market scenario, would place pressure on pricing.

Upstream, crude futures fell on Tuesday, after bobbing up and down near the $50 per barrel mark throughout the trading session. A stronger dollar also weighed on commodity prices.

Oil was expected to come under pressure as U.S. government reports released on Wednesday were likely to show a build in crude oil stocks, largely as a result of Hurricane Harvey shutting down U.S. oil refineries in late August.

At the same time, OPEC output declined last month along with a drop in its exports, suggesting better compliance with production cuts.

On Tuesday, Sep. 19, West Texas Intermediate futures settled on the CME/Nymex at $49.48 per barrel, up $1.25/bbl from $48.23 per barrel on Sep. 12.

Light Louisiana Sweet wholesale spot prices closed at $55.36 per barrel on Sep. 18, up from $52.56 /bbl on Sept. 11, according to data from the U.S. Energy Information Administration.

Brent was trading at $55.14/bbl on the CME on Sep. 19, up 87 cents/bbl from $54.27/bbl on Sep. 12.

Low sulfur vacuum gas oil was at Oct WTI plus $11.75/bbl ($61.66/bbl) and high sulfur VGO was at crude plus $10.50/bbl ($60.41/bbl) on Sept. 18, according to data published by PetroChemWire.

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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