Base Oil Pricing Report

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A Little Bit of Sunshine

With the gradual reopening of businesses and easing of lockdowns imposed to fight the coronavirus pandemic, it seemed that the population in most countries was starting to see a little bit of sunshine at the end of a very long, dark and uncertain tunnel.

Covid-19 has not only been the mainspring of a staggering death toll but also of catastrophic implications for most of the world’s economies and, more specifically, the base oils and lubricants industry. 

Analysts predicted that gasoline and lubricants demand—which was estimated to have plummeted by at least 50 percent—would improve once people returned to work and businesses reopened. Many may prefer not to take public transportation for fear of infection and may even be willing to drive long distances as airlines have cut back flight schedules and were likely to increase fares. 

While an easing of stay-at-home orders and rising mobility may translate into more lubricant demand from the automotive segment, new car sales were expected to be significantly down because of the battered financial situation of many families. This decrease in car sales was likely to affect factory-fill motor oil
consumption and process oil demand from the tire segment, amid a slowdown in many other fragments of the market.

The dramatic slump in base oil demand and the collapse of crude oil futures—which on April 20 registered negative figures for the first time in history—drove both naphthenic and paraffinic producers to offer individual discounts and implement price reductions.

Naphthenic producers Ergon and Calumet introduced decreases of 35 cents per gallon, while San Joaquin Refining lowered prices by 20 cents, with the exception of its transformer oils, during the last week of April. Cross Oil evaluated accounts on a case-by-case basis.

There were no posted price revisions on the paraffinic side, but spot prices plummeted due to a lack of demand, coupled with growing inventories at several plants. A number of suppliers granted hefty temporary voluntary allowances or value adjustments to invigorate orders.

While the easing of lockdowns ushered in a slightly sunnier outlook for the market, participants held onto cloudier expectations and acknowledged that it may take a long time to get back to pre-pandemic activity levels—perhaps even years.

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