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February 12, 2020

Volume 3 Issue 8

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U.S. Base Oil Price Report

Phillips 66 will be increasing posted prices this week, rounding out a series of posted price hikes that were first introduced in mid-January.

Phillips 66 will be lifting its API Group II+ (Ultra-S2 and Ultra-S3) and its Group III (Ultra-S4 and Ultra-S8) base oils by 20 cents per gallon, effective Feb. 12. Other Group II+/III suppliers have already implemented similar increases.

A majority of producers have marked up their postings between 20 cents/gal and 30 cents/gal, with the increase amounts varying depending on the cut and the supplier, and effective dates spread between Jan. 13 and Feb. 5.

The increases were propelled by steeper crude oil and feedstock prices at the beginning of January, together with a need to recoup margins, which had been compressed during the months leading up to the latest hikes. A gradual tightening of supplies offered additional support to the increases, sources said.

The base oil hikes, together with other price components such as higher transportation costs, triggered increases in the downstream finished lubricants and additives market, which are scheduled to go into effect between February and March.

Both paraffinic and naphthenic base oil suppliers said that demand had picked up as compared to the last quarter of 2019, as participants had started to prepare inventories for the spring production cycle. "We had a strong January and February is looking good," a producer commented.

Participants were concerned about uncertainties such as the impact the spread of the coronavirus might have on downstream demand – given that it was affecting global industrial activity – and about other economic factors that affect the market in a presidential election year.

Aside from an uptick in domestic requirements, suppliers said that U.S. base oils buying interest from Mexico remained steady, particularly for Group I cuts, and was anticipated to improve as stocks were running low for some blenders. Demand for low-viscosity grades for fuel blending was also deemed healthy.

Naphthenic base oils availability was anticipated to tighten on the back of an ongoing turnaround at San Joaquin Refining's plant in Bakersfield, California, and an imminent 26-day shutdown at Ergon's plant in Vicksburg, Mississippi, slated to start on March 5.

On the paraffinic side, a catalyst change and maintenance program at Excel Paralubes' Group II plant in Lake Charles, Louisiana, was heard to be going as planned and the unit was expected to be back on line at the end of the month.

Upstream, crude oil and feedstock prices have been on a downward spiral over the last five weeks, given prospects of reduced demand due to the coronavirus outbreak and the fact that manufacturing in China has come to an almost complete halt in many areas.

The sliding crude prices could potentially start to exert downward pressure on base oil values, particularly if demand starts to suffer from the consequences of the decrease in industrial activity.

After falling sharply on Monday, crude oil futures seemed to have found a floor on Tuesday, but analysts believed that the prevailing bearish sentiment would continue to weigh on prices. Values were somewhat buoyed by reports that the number of new coronavirus cases in China was dropping. However, doubts still lingered about the extent of future output cuts from OPEC+ producers.

The U.S. Energy Information Administration lowered its 2020 forecasts for West Texas Intermediate and Brent crude oil prices and reduced its expectations for U.S. crude-oil production, according to the Short-Term Energy Outlook released Tuesday, Marketwatch.com reported. The EIA set its 2020 WTI oil price forecast at $55.71 per barrel, down 6 percent from its previous view. It also cut its Brent crude price forecast by 5.5 percent to $61.25 for 2020.

On Tuesday, Feb. 11, WTI futures settled at $49.94/bbl on the CME/Nymex, and had closed at $49.61/bbl on Feb. 4.

Brent futures for April delivery were reported at $54.01/bbl on the CME on Feb. 11, from $53.96/bbl on Feb. 4.

Light Louisiana Sweet crude wholesale spot prices settled at $54.44/bbl on Feb. 6, compared with $53.86 on Feb. 3, according to the Energy Information Administration. There was no Feb. 10 quote available at the time of writing.

Low sulfur vacuum gas oil and high sulfur VGO were trading at March WTI plus $10/bbl ($59.57/bbl) on Feb. 10, according to OPIS PetroChemWire assessments.

Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.

Posted Paraffinic Base Oil Prices

February 12, 2020

(Prices are FOB basis, in U.S. dollars per gallon and U.S. dollars per metric ton).

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.

U.S. Base Oil Price Report table