U.S. Base Oil Price Report

The Presidents Day holiday on Feb. 17 and the start of the ICIS World Base Oils Conference in London drew participants away from the work place and resulted in largely unchanged market conditions, although some discussions certainly focused on the impact of the coronavirus outbreak.

The effects on the global base oils market of the deadly outbreak in China was one of the issues to be covered at the annual industry event in London, together with other topics such as sustainability and electric vehicles.

Manufacturing activity has been impacted by factory and business closures, together with transportation disruptions in China, where the coronavirus outbreak began. Automotive manufacturing facilities in several countries have temporarily idled production lines given a lack of parts and materials coming from China, and this has led to a slowdown in lubricant requirements.

“The new coronavirus outbreak and subsequent shutdown of huge swathes of China could impact more than 5 million businesses worldwide,” CNBC.com reported on Monday.

A special briefing issued by global data analytics firm Dun & Bradstreet analyzed the Chinese provinces most impacted by the virus, and found they are intricately linked to the global business network, the article said. Businesses in these regions are branches and subsidiaries of foreign companies from countries such as Hong Kong, the U.S., Japan and Germany.

Even if the epidemic is contained, business confidence in China is not going to improve overnight. “In the best of circumstances, the process will take six to nine months to see the way forward to a stable and commercially feasible reintroduction of business, confidence and renewed investment,” CNBC.com noted.

However, the outbreak has not had a significant impact on the United States base oil market so far, sources said. Suppliers confirmed that orders had been fairly steady, but that concerns about future consumption of lubricants have started to emerge, particularly for those businesses with subsidiaries, suppliers or customers based in China.

Trading has been only slightly affected as some finished product manufacturers were hesitant about the volumes of raw material needed to be purchased in the short term, given that downstream demand from certain segments might sag if the crisis in China continues.

In the meantime, base oil sales into destinations in the Americas, such as Mexico and Brazil, were deemed relatively healthy.

The dust has settled following the latest round of base oil posted price increases for the North American market, with the higher values being passed down the supply chain to finished lubricants, additives and greases in the form of 7 to 12 percent markups implemented throughout February and March.

While base oil supply in the domestic market was adequate for most cuts, maintenance programs at several plants, including an ongoing catalyst change at the API Group II Excel Paralubes plant in Lake Charles, Louisiana, and a turnaround at San Joaquin Refining‘s naphthenics unit in Bakersfield, California, had tightened availability of certain grades.

A scheduled turnaround at Ergon‘s naphthenics plant in Vicksburg, Mississippi, which was expected to start on March 5, was anticipated to tighten pale oil spot supply further, although the producer explained that it would continue to meet contractual obligations as it had built inventories for that purpose.

In other production news, it was still unclear whether the fire that erupted at ExxonMobil‘s Baton Rouge, Louisiana, refinery and chemical plant on Feb. 11 would affect base oil production. While the company declined to provide details about the plant’s status, it stated that it would meet its contractual obligations for all products. The base oil facilities can produce 16,000 barrels per day of Group I base oils, according to Lubes’n’Greases Guide to Global Base Oil Refining.

Market sources said that the fire had ostensibly damaged one of the crude units at the refinery, but the extent of the damage had not been disclosed. The damage might result in a reduced crude run and decreased vacuum gas oil output, which could potentially impact base stock production. “However, the Baton Rouge plant is 510,000 barrels per day, so even if there is less VGO [for base oil production], there should be more than enough available from the existing crude towers,” a source conjectured.

More information can be found in “Baton Rouge Refinery Hit by Fire” in this week’s edition of Lube Report Americas.

Another factor that market players were keeping an eye on this week was crude oil prices, since they remained volatile and easily swayed by news about the changing situation surrounding the coronavirus outbreak. A five-day rally driven by optimism that the worst economic impact of the coronavirus had been accounted for ended when investors’ concerns were reignited by a significant slump in Chinese oil demand, coupled with decreased confidence that OPEC+ would implement deeper production cuts in March.

The fall in crude demand has turned Brent futures into contango – a market condition in which prices for delivery at later dates are higher than prompt prices – due to oversupply; traders often take advantage of this situation by storing oil for delivery at a later date.

Trading houses and the trading units of oil majors were heard to have hired oil storage in South Korea to keep crude in tanks until Chinese and general Asian demand recovers from the blow from the coronavirus outbreak, according to a Reuters report. Traders have also rented supertankers for temporary floating storage.

In recent weeks,traders have been scrambling to find buyers of crude cargoes in Asia, as Chinese demand plummeted and buying interest in broader Asia was muted due to low refining margins, OilPrice.com reported.

On Tuesday, Feb. 18, WTI futures settled at $52.05 per barrel on the CME/Nymex, and had closed at $49.94/bbl on Feb. 11. There was no trading on Feb. 17 due to the Presidents Day holiday.

Brent futures for April delivery were reported at $57.75/bbl on the CME on Feb. 18, from $54.01/bbl on Feb. 11.

Light Louisiana Sweet crude wholesale spot prices: Due to technical difficulties, the Energy Information Administration has not posted updated prices. The last posted price was $54.44/bbl on Feb. 6.

Gabriela Wheeler can be reached directly atgabriela@LubesnGreases.com.

Posted Paraffinic Base Oil Prices

February 19, 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 inExcel format.

U.S. Base Oil Price Report table