Suppliers were focused on filling some early orders ahead of the busy spring production season, but it was too early to ascertain whether demand would be more vigorous than during last year’s cycle. A number of buyers have stepped back into the market to secure shipments, while many remained cautious as activity in the lubricant and finished products segments was still reticent.
Rerefiners also saw a significant increase in the used oil collection rates, with one participant citing an increase of about 8%. “This ‘wave’ usually happens two to four weeks before blenders start quickly replenishing inventories,” a source commented. Suppliers in this segment also noted that they had received a fair amount of fresh business. These conditions translated into more light-viscosity grades being produced at rerefineries, adding to the already plentiful domestic pool.
Consumers appeared ready to take most of their contract volumes but did not seem overly interested in securing extra cargoes on the spot market for the moment, although some suppliers have offered reduced prices. There was talk about a number of buyers also receiving temporary value allowances, but this condition did not seem widespread.
U.S. suppliers were looking for export opportunities to help reduce a potential product overhang. Spot prices have therefore edged down, as sellers hoped to attract more buyers, with heightened activity on the export front noted as U.S. products were offered to destinations in Europe, Asia, the Middle East and Latin America. Spot export prices for Group I and Group II grades have fallen by 10 cents per gallon to 15 cents/gal week on week.
One of the roadblocks to the completion of export deals was competition with Asian producers, as supplies were also plentiful in Asia, but this particular situation did not seem to affect business into Mexico. A 3,800-metric ton cargo was mentioned for shipment from Ulsan, South Korea, to the West Coast of South America (WCSA) in late February/early March and other parcels were under discussion.
Mexican base oil demand has fallen on account of the stricter import requirements imposed by the Mexican government, particularly as far as light grades used as diesel extenders were concerned. However, Mexican buyers do have a long supply relationship with several U.S. suppliers, and they intended on keeping this intact. Additionally, the proximity to U.S. production sites was also seen as an advantage. Several shipments were under discussion involving grades that are used in finished products as lubricant demand has started to pick up in Mexico.
About 5,000 tons to 7,000 tons were mentioned for shipment from Houston, Texas, to Mumbai, India, in the first half of February, and several large cargoes were being discussed for shipment to India and the Middle East this month. Details emerged on a 6,000-ton cargo having been lifted in Houston for Mumbai last December and a 5,500-ton parcel having been shipped from Pascagoula, Mississippi, to Mumbai in late December. A 12,000-ton lot was mentioned for possible shipment from the U.S. Gulf to West Africa in the first half of March.
Recent production outages in Brazil and ongoing uncertainties at local refineries prompted buyers to look for import cargoes, but interest was deemed less robust than during the fourth quarter of 2023 because a key producer has increased output levels and appeared able to deliver all contract volumes. Domestic prices in Brazil – which have been lowered – were seen as more competitive than U.S. figures. The Carnival festivities in many parts of Brazil were dampening business discussions this week.
The Houthi attacks on commercial vessels in the Red Sea continued but did not seem to have affected base oil shipments to the Americas, although they did place upward pressure on freight rates. Cargoes moving from the Middle East to Europe, and from that region to India are taking the longer route around the southern tip of Africa to avoid the Suez Canal, which resulted in longer voyage times and higher fuel costs.
Delays at the Panama Canal seem to have been reduced as additional vessels were allowed to traverse the canal. The number of vessels using the waterway had been restricted due to low water levels.
The shipping disruptions had been expected to affect API Group III shipments in particular, as most Group III grades used in the U.S. are imported from Asia and the Middle East. However, availability seemed to be plentiful, and prices were stable despite continuing competition among suppliers because there were expectations that supplies would tighten over the next few months given scheduled turnarounds at several Asian and European facilities.
On the naphthenic base oils side, a fairly balanced supply and demand ratio lent support to light viscosity base oil prices, but the heavy-viscosity grades remained exposed to downward pressure because of an ongoing seasonal slowdown. However, suppliers were optimistic that consumption from the asphalt and rubber modifier markets would ramp up, especially when the market approaches the start of the second quarter. Export transactions into Europe, Asia and Latin America were also expected to keep domestic supply on the snug side.
Recent maintenance programs at Calumet’s plant in Princeton, Louisiana, in late January, and an earlier turnaround at San Joaquin Refining’s plant in Bakersfield, California, last December also contributed to a tighter supply scenario. A brief shutdown at a third producer’s facilities in mid January due to extreme winter temperatures also led to a further tightening of availabilities. The San Joaquin refinery was running well and had not been affected by the severe storms in California last week. A key producer has scheduled a maintenance program in March and was heard to be building inventories.
Both paraffinic and naphthenic base oil market players were monitoring crude oil prices closely, although base stock values were currently more swayed by supply and demand factors than by feedstock prices. One element that will likely play a significant role in whether base oil production might be reduced is the price of fuels. Refiners might decide to produce more middle distillates instead of base oils, depending on whether margins are more attractive, but base oil output levels remained high for the time being.
Lubricant manufacturers were also concerned about recent overtures by additive suppliers to raise prices. At least one producer was heard to have communicated a 4% to 5% increase on additives for March implementation, but buyers were expected to resist the hike since demand for finished products has not been robust.
Crude oil prices climbed on Tuesday as uncertainties over conflicts in the Middle East and Eastern Europe were still very much a concern, but gains were capped by ongoing inflation that might weigh on energy demand. Oil prices were nearly flat in Monday’s trade, after jumping by 6% last week.
On Tuesday, Feb. 13, West Texas Intermediate (WTI) March 2024 futures settled on the CME at $77.87/barrel, compared to $73.31/bbl on Feb. 6.
Brent futures for April 2024 delivery settled on the CME at $82.77/barrel on Feb. 13, from $78.59/bbl on Feb. 6.
Louisiana Light Sweet crude wholesale spot prices were hovering at $79.99/barrel on Feb. 12, from $75.81/bbl on Feb. 5, according to the Energy Information Administration (EIA).
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
Lubes’n’Greases Publications shall not be liable for commercial decisions based on the contents of this report.
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