Inventory-building efforts during hurricane season, steady demand from some downstream segments, recent plant outages and ongoing export business have resulted in a balanced-to-tight paraffinic base oils market scenario. While crude oil values have lost ground since June, base stock suppliers were standing firm by their postings, as they have been able to keep oversupply conditions at bay, despite the first intimations of a seasonal slowdown.
Participants admitted that buying interest for some base stock grades has weakened, as the market has fallen into the summer doldrums, with buyers having already fulfilled most product needs. Many consumers have, in fact, bolstered inventories in preparation for potential supply disruptions caused by severe weather along the United States Gulf Coast. A preview of the impact that a major storm can have came in the shape of Hurricane Beryl in early July. The storm did not cause extensive production outages, but it did lead to some port and terminal closures and transportation disruptions, mainly due to widespread power outages.
The API Group I and Group II segments remained fairly tight, limiting spot availability – particularly of the light grades –which lent support to current spot prices. However, as base oil margins have risen vis-à-vis vacuum gasoil and competing fuel values, refiners see an incentive in maintaining – or even increasing – base oil output rates, which could offset some of the supply tightness caused by steady demand and brief unexpected outages at a couple of refineries. Even so, some producers were limiting shipped volumes to contract commitments, and there were reports of a supplier placing customers on allocation.
Availability of Group III cargoes in the U.S. had been affected by the delay of a cargo coming from the Middle East. But the arrival of the shipment last week has lifted some of the concerns about potential shortages. Domestic Group III production has also been steady, and while some producers directed most volumes to their downstream operations, a few others offered their products into the merchant market, keeping it from becoming too tight. Market sources said that the 4 cSt grade had started to lengthen, applying downward pressure on prices, with a supplier heard to be planning to reduce 4 cSt prices next month. Conversely, limited availability of the 6 cSt and 8 cSt grades was placing upward pressure on pricing.
U.S. export business has been less brisk than in previous months because domestic supply has tightened. Demand from Europe was starting to weaken, as the region enters the summer holiday month of August. But Mexican buyers have been on the lookout for U.S. cargoes because they are keen on avoiding any supply disruptions and the possibility of climbing prices, should a hurricane disrupt production along the Gulf Coast. There has been increased acceptance of higher prices for U.S. product, with Group II grades commanding slightly steeper levels than Group I cuts.
U.S. suppliers also reported buying interest from West Coast South America, but there has also been talk that the sole Taiwanese Group II producer had been exploring the possibility of shipping cargoes to WCSA, despite steep shipping rates and other logistical issues.
While there was still demand from Brazil for U.S. cargoes, tight supplies at origin and competitive domestic prices have dampened business. The main Brazilian base oil producer has been able to maintain steady production rates and this has allowed buyers to feel more comfortable relying on domestic supply, but there was still appetite for imports because local production was not deemed sufficient to cover all product requirements.
On the naphthenic base oils front, demand has started to show signs of weakening as the summer wears on, although the lighter grades are still seeing healthy consumption levels from the transformer oil segment. Participants also said that infrastructure projects were calling for naphthenic base oil applications, supporting a more balanced supply and demand ratio.
Naphthenic base oil prices were under pressure given slipping crude oil and feedstock prices and a seasonal slowdown in demand.
On the finished lubricants’ front, participants said that demand for lubricants had softened as was expected for this time of the year, and this had undermined hopes of implementing price increases to offset base oil and additive price hikes implemented back in March and April. Additionally, some blenders were offering competitive prices and this forced other suppliers to adjust prices down into select accounts to protect market share.
In terms of prices on the base oils front, there have not been posted price changes since April, but market participants have been monitoring developments on the crude oil side as a downward trend has emerged in recent weeks.
West Texas Intermediate and Brent have lost ground despite heightened tensions in the Middle East as Israel targeted a Hezbollah commander in Beirut, Lebanon, in retaliation for a rocket strike that killed 12 children and teenagers in Israeli-occupied Golan Heights over the weekend.
On Tuesday, crude oil futures fell by about 1% to settle at a seven-week low on concerns that demand from China might be weakening, while OPEC+ appears ready to start increasing supplies. Manufacturing activity in China – the world’s top crude importer–likely contracted for a third month in July, according to a Reuters poll, and OPEC+ plans to meet on Thursday amid expectations that the group will not change its policy regarding output levels.
On July 30, WTI September 2024 futures settled on the Nymex at $75.81 per barrel, compared to $76.96/bbl on July 23.
Brent futures for September 2024 delivery were trading on the ICE at $79.11/bbl on July 30, compared to $81.62/bbl on July 23.
Louisiana Light Sweet crude wholesale spot prices were hovering at $79.22/bbl on July 29, from $83.65/bbl on July 22, according to the U.S. Energy Information Administration.
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.
Archived base oil price reports can be found through this link: https://www.lubesngreases.com/category/base-stocks/other/base-oil-pricing-report/
Historic and current base oil pricing data are available for purchase in Excel format.