Crude oil futures had moved up in recent weeks on a potential escalation of the conflict between Israel and Hamas war, which started with the Hamas attack on October 7 last year, with Iran becoming involved in the conflict and fears that Israel would attack Iranian energy infrastructure. But there was also ongoing concern that the stimulus plans presented by the Chinese government might not be enough to restore strength to the country’s economy, leading to reduced crude oil demand from the world’s top oil importer.

Diesel demand has slipped and “remains a headache for refiners as U.S. product supply of distillate fuel oil dipped 6% year-over-year in 2024 to date amidst declining manufacturing activity and higher biofuel consumption,” OilPrice.com reported. This provided an added incentive for refiners to run base oil production lines at close to top rates, as base stocks continued to offer attractive margins over those of competing fuels.

While most U.S. plants were running well, an API Group I/II producer was heard to have suffered an unexpected production issue, which was anticipated to result in one to two weeks’ maintenance. Even though demand has been fairly stagnant in recent weeks, an unplanned outage can always tighten supplies temporarily.

Additionally, Chevron was conducting a scheduled three-week turnaround at its Group II/Group III unit in Richmond, California. The turnaround was not expected to impact base oil availability as the producer has likely built inventories ahead of the shutdown. Chevron was also understood to be planning to take its Pascagoula plant offline for three weeks in the first quarter of 2025. There was no confirmation about the turnaround schedule as the producer does not comment on the status of its base oil operations.

These outages and the recent devastation caused by hurricanes in Florida and other coastal states prompted Group II suppliers to become more cautious and limit the volumes offered on a spot basis to ensure availability through October and November, providing prices with firmer footing. Supplies of Group I grades have generally remained tight given less domestic production capacity compared to the Group II grades and prices were therefore stable, while the Group II 100 neutral appeared to be the tightest of all.

The Group III segment was under pressure because of ample availability, as importers of South Korean and Middle Eastern products continued to ship most of their regular volumes to the U.S., particularly as demand has softened in other regions, while domestic producers had steady production of Group III grades, except for Chevron as mentioned above as the producer was completing a turnaround. Some of the imported Group III barrels were likely to be placed into storage if demand remained lackluster. Spot prices for the 6 cSt and 8 cSt grades were largely stable as supply and demand appeared better balanced than for the 4 cSt grade, which slipped by about 5 cents per gallon from the previous week.

Export activity to Europe, Latin America, India and Africa has also slowed down because demand has subsided and prices were less attractive than earlier in the year. Nevertheless, some discussions were ongoing, with a 2,700-metric-ton to 6,300-ton parcel of lubes expected to be shipped from Houston, Texas, to Guayaquil, Ecuador, this month. There was also mention of approximately 5,000 tons of base oils making their way from Ulsan, South Korea, to Rio de Janeiro, Brazil, in the second half of October.

There continued to be inquiries for Group I and Group II base oils moving to Mexico, but buyers hoped to achieve lower numbers than the ones currently offered and appeared willing to postpone purchases unless they needed base oils to run operations in the short term, as there are not many other options in terms of material since domestic availability was negligible. Some U.S. rerefined cargoes made their way to Mexico at very competitive prices to cover immediate requirements, according to sources. Products from other origins such as the Middle East faced roadblocks in terms of import and approval requirements.

There were no additional price adjustments reported in the naphthenic base oils segment, following a 20 cents-per-gallon decrease introduced by a majority of producers in late September, although one producer abstained from implementing a general price decrease at the time. With crude oil prices having moved up, naphthenic base oil prices were exposed to upward pressure, with suppliers monitoring crude values that could trigger base oil adjustments if crude values are maintained above a certain level over the next few weeks.

Demand for the heavy pale oil grades from the tire and rubber segments – which are mostly suppliers to the automotive industry – has weakened as the driving season has ended, although an uptick in travel activity was expected during the U.S. Thanksgiving holiday in late November. Consumption of the lighter grades used for transformer oil and other applications was still healthy and prices were steady. There has been a small increase in exports to Europe and Latin America, mainly driven by snug supplies at those destinations.

Downstream, lubricant inventories remained high because consumption in the automotive segment declined following the end of the driving season. Demand from the industrial and agricultural sectors fared better, but was still not enough to lead to a significant inventory reduction, according to sources. Participants reported various competitive price movements, with some of the major lubricant manufacturers heard to be offering hefty discounts to place additional volumes whenever possible. Blenders struggled to offset base oil price increases implemented back in April and saw some relief through the recent round of posted price decreases in September, but these did not appear to be enough as production costs remained steep, squeezing margins. There were indications that blenders were hoping to receive a respite from additive suppliers in the coming weeks given the lower base oil posted prices.

Crude

West Texas Intermediate (WTI) plunged by more than 4% to below $71 per barrel on Tuesday as a report that Israel may avoid targeting Iran’s nuclear and oil infrastructure eased concerns about potential supply disruptions, but uncertainties over the conflict and about future oil demand lingered, limiting the drop. While the war still poses a threat to the region’s energy output, the oil market will face a glut in early 2025, the International Energy Agency said on Tuesday.

On October 15, WTI November 2024 futures settled on the Nymex at $70.58/bbl, compared to $73.57/bbl on October 8, up from $69.83/bbl on October 1.

Brent futures for December 2024 delivery were trading on the ICE at $74.52/bbl on October 15, from $77.76/bbl on October 8 and $75.15/bbl on October 1.

Ultra-low-sulfur diesel futures were down 6.97 cents at $2.2742/gal on October 14, according to OPIS/PetroChemWire.

Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com

Posted Paraffinic Base Oil Prices: October 16, 2024 (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. Archived base oil price reports can be found through this link: https://www.lubesngreases.com/category/base-stocks/other/base-oil-pricing-report/

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