US Group II base-oil exports pressured by Laura, over 40% of capacity offline

HOUSTON (ICIS)–With two major US Group II base oil suppliers shut ahead of Hurricane Laura, limited supplies could further pressure Group II spot export prices.

The storm’s projected path targets the heart of US refining capacity, and three major base oil production sites are at risk of potential damage. Supply could be limited, depending on how long the plants are down.

Motiva and Excel Paralubes have shut their complexes, taking 42% of US Group II base oil refining capacity off line (inclusive of re-refined base oil), according to the ICIS Supply and Demand Database.

Motiva is in Jefferson county, Texas, and Excel Paralubes is in Calcasieu parish, Louisiana, both of which are under mandatory evacuation orders.

Company	Capacity (tonnes/year)	Location	Grade
Excel Paralubes	22,200	Westlake, LA	Group II
Motiva	38,300	Port Arthur, TX	Group II
Motiva	2,000	Port Arthur, TX	Group III

Source: ICIS Supply and Demand Database

ExxonMobil’s Baytown, Texas, site is understood to be operating normally, but monitoring the storm’s progress. The site has capacity to produce 9,800 bbl/day of Group I and 18,200 bbl/day of Group II.

An outage at Baytown would boost affected Group II capacity to 54% of total US Group II supply, and would leave Chevron’s two refineries in Richmond, California, and Pascagoula, Mississippi, as the only major Group II suppliers still operating.

OVERSEAS DEMAND ALREADY SUPPORTING FIRM EXPORT PRICES

Demand-wise, buying interest in export markets is significantly outpacing domestic recovery following the coronavirus.

Group II export prices – which typically run at a discount to domestic prices of 20 cents/gal or more – are now running less than 10 cents/gal below domestic prices at midpoints.

While the US is no longer dealing with significant oversupply, suppliers have been managing any length through cargoes to regions with stronger demand, most notably India, Africa and Brazil.

Group I production has been limited in Brazil since June, so buyers have been actively seeking Group I and II material.

India is the strongest market, and pricing to the region has been workable at the higher end of ICIS ranges, despite the higher freight rates it would take to import from the US instead of from Asia.

Several thousand tonnes of Group II are lined up to head to the region in August amid an open arbitrage window.

Below is a list of fixtures from the US since June:

Fixtures

	Vol (tonnes)	Origin	Destination	Load
Lubes	15,000	Houston	Mumbai/Hazira	5-Jun
Lubes	8,000	Lake Charles	WC India	10-19 Jun
Lubes	1,500	Houston	Rio de Janeiro	1-Jul
Lubes	1,000	USGC	Santos	prompt dates
Lubes	15,000	Houston	Santos	5-14 Jul
Lubes	18,000	Houston	Lagos	15 Jul
Base oils	18,000-23,000	Ruwais and/or Sitra	Durban+USG	10-20 Aug
Base oils	10,000	USG	WC India	5 Aug
Lubes	3,000	USG	Med	10 Aug
Lubes	10,000	Pascagoula+Port Arthur	Mumbai	1-15 Aug
Lubes	8,000	Port Arthur	Mumbai	1-15 Aug
Base oils +chems	16,000	USG	Brazil	15 Aug
Lubes	14,000	USG	WC Africa	14 Aug
Lubes	4,000	USG	Ashdod	10 Aug
Lubes	5,000	Houston	Rio de Janeiro	25 Aug-5 Sep

Source: Shipping market sources

Outages in the US Gulf could pressure spot export pricing higher, but demand for US material is likely to remain strong.

Supply is snug in India and the Middle East amid shortages of material from Asian and Middle Eastern suppliers.

One Middle East supplier is experiencing production issues, according to market sources.

This could keep demand for US material strong through September, despite rising prices and the higher freight rates from the US Gulf. Additionally, Indian demand is expected to strengthen after monsoon season.

Base oils are used to produce finished lubes and greases for automobiles and other machinery.

Focus article by Amanda Hay

Additional reporting by Anna Matherne and Adam Yanelli

Thumbnail image shows lubricants, which are made with base oils. Photo by Shutterstock

Click here to view the Automotive – impact on chemicals topic page.
Click here to view the ICIS Coronavirus, oil price crash – impact on chemicals topic page.