Despite Production Cuts, Base Oil Prices Continue to Tumble in the United States

Base Oil prices in the United States have been declining in recent months as the demand for this product and the price of upstream Crude Oil continues to decline. These have been significantly impacting the overall cost of Base Oil. As the cost of Crude Oil continues to drop, so too will the price of Base Oil, creating an ideal market for those looking to purchase large quantities of the product.

With limited spot availability and prices deemed steady to soft, the API Group I Base Oils' market was observed to be balanced – to – tight. A Group I refinery had begun a turnaround at the beginning of March 2023, which was thought to have contributed to the tightening of supplies of Group I oils, yet the unit was expected to have been restarted in the last week of March; however, this was unable to be confirmed.

Given that Group II Base Oil supply had been anticipated to tighten as a result of an extended turnaround at a crucial United States Gulf Coast facility, it was a little unexpected to see suppliers granting TVAs within the Group II segment. Although there have not been any supply issues in this segment, an extension in turnaround may change this.

Excel Paralubes, which began a turnaround and catalyst change in early February, was scheduled to restart its plant at the end of March, but there have been reports that the shutdown has been extended for a few weeks due to technical issues. According to sources, this may have an impact on the company's ability to meet contractual obligations in the coming weeks, forcing it to secure products from other suppliers.

In the middle of March, a Group II+/Group III Base Oil refiner finished a brief one-week shutdown.

Despite the turnarounds, Group II supplies were still enough to meet demand in the face of weak domestic demand and scant purchasing interest from other areas. Market participants also noted that a greater quantity of Group II Base Oil would be entering the market, putting additional pressure on pricing once both plants resume production at full rates following catalyst changes.

As per the analyses by ChemAnalyst, in the first week of April 2023, Group II Base Oil was being traded for about USD 1,760 per MT for N600 grade and USD 1,440 per MT for N400 grade on FOB – Texas basis.

Since supplies of the 6 centiStoke and 8 centiStoke grades are less sought-after than those of the 4 centiStoke grade, they are more vulnerable to price drops in the Group III Base Oil segment. The surplus was also becoming more readily available as a result of the increased domestic production of Group III. Consequently, some suppliers appeared to be willing to grant more TVAs to Group III oils.

The declining prices of Base Oil in the United States have had a significant impact on the oil industry. The current low cost of Base Oil will likely lead to reduced spending from the oil companies, as they may be unwilling to invest in new projects due to the current economic climate. This could affect future production and refinery operations in the near term.

The low prices could also reduce the profit margins for many oil companies as well as refining operations. Furthermore, the declining prices could create a challenge for oil producers who are attempting to sell their products in a competitive market.

Despite these challenges, the low cost of Base Oil is also providing an opportunity for companies in the industry. Refineries that can produce quality products with a lower cost base may be able to gain a competitive advantage in the market. This could help companies increase their market share and potentially provide more stability to the industry.

Overall, the current low cost of Base Oil is having a dramatic effect on the oil industry.