Mounting supplies and the need to clear inventories ahead of year-end continued to exert downward pressure on some base oil grades, but an unexpected outage at an API Group II/Group III plant offset some of this pressure and may lead to a temporary tightening of short-term supplies. Lackluster market activity and the Thanksgiving holiday in late November led to steady price levels this week, as there were no overpowering conditions pulling prices in a particular direction.
According to sources, the Excel Paralubes Group II/Group III plant in Lake Charles, Louisiana, suffered unexpected output issues last week, but the unit was anticipated to be restarted this week. Supplies of Group II cuts had been steadily growing in the U.S. over the last month, and were partially curtailed by the unplanned outage, with the 100N cut in particular said to be snug.
As Chevron was also preparing to shut down its Group II plant in Pascagoula, Mississippi, in the first quarter and was expected to build inventories to cover requirements during the outage, a further tightening of Group II spot supplies may occur. There was no confirmation about the turnaround as the producer does not comment on the status of its base oil operations.
The climbing supply levels, a slowdown in demand and softer crude oil and feedstock values had prompted a majority of base oil producers and rerefiners to implement posted prices decreases in the range of 15-50 cents per gallon, depending on the grade and the supplier, between October 21 and November 25, with the exception of Group I bright stock and ExxonMobil’s Group II 220 neutral grade. ExxonMobil and Paulsboro lowered their other Group I prices in November, but the remaining Group I producers did not adjust prices last month given more balanced inventories of those grades.
The price revisions reflected conditions that are not atypical at the end of the year, as demand tends to decline following a busier spring/summer season and inventories start to grow. A need to clear inventories held during hurricane season – which officially ends on November 30 – also drives suppliers to pursue increased business opportunities by lowering prices, including posted and spot values. However, suppliers appeared to be reluctant to adjust spot prices further as the decreases did not necessarily spur increased orders.
Lower base oil demand was attributed to several factors, including longer drain intervals for newer car models, a gradual growth in electrification, and the postponement of oil changes due to economic reasons, particularly in applications such as heavy-duty vehicles and farm equipment. Blenders reported an average drop in lubricant demand in the range of 8-10% from last year – which had already seen significant reductions compared to 2020 baseline figures – with the biggest decline observed in the first quarter of 2024. Competitive movements among lubricant suppliers to maintain or gain market share were exerting pressure on the price of lubricants, greases and other finished products.
Meanwhile, Group III base oil prices stabilized on reduced output at domestic plants and suppliers’ hesitation to adjust prices further. What did seem to lead to increased buying interest for Group III grades was competitive pricing against Group II grades. Availability of most grades was deemed plentiful and was expected to remain ample thanks to the expected arrival in the Americas of South Korean and Middle Eastern cargoes over the next few weeks.
Since domestic spot base oil demand in general was not likely to improve until the first quarter of 2025, suppliers set their sights on export opportunities, but these seemed to be difficult to bring to fruition because U.S. prices were still comparatively high, despite recent spot and posted price decreases.
One of the markets that had drawn large volumes of U.S. base stocks earlier this year had been Brazil, but buying interest has abated, and competitive domestic pricing coupled with prevailing freight rates discouraged some transactions. Even so, there were signs that Brazilian buyers started to eye U.S. supplies to replenish stocks that were drawn down, but they were understood to be in discussions with Asian sellers as well.
Another focal point for export transactions – particularly for Group II barrels – during the fourth quarter tends to be India, as the country attracts large quantities of imports, especially if they are available at the right price point during a period of festivities and stock replenishment. However, demand has not been as strong as in years past because many buyers increasingly relied on domestic products. U.S. prices started to be more competitive because they came down over the last few weeks. A 5,000-metric ton cargo was under consideration for shipment from Pascagoula, Mississippi, to Mumbai, India, and/or Hamriyah, United Arab Emirates, in the first half of December.
Business into Mexico was described as fairly steady, but once again, U.S. suppliers acknowledged that they had been moving fewer cargoes than in recent years because of restrictions imposed by the Mexican government on base oils used as fuel extenders. Sources said that shipments of the premium grades and lubricants for factory-fill applications continued unabated because of growing car manufacturing in Mexico, with several operations having been moved to the neighboring country. There were expectations that spot business may pick up over the next few weeks and that some discussions may be taking place on the sidelines of the 18th ICIS Pan American Base Oils and Lubricants conference taking place in New Jersey on December 5-6.
On the naphthenic base oils front, there was less price pressure on values than on the paraffinic side because of better-balanced conditions, especially for the light-viscosity grades. Volatile crude oil prices placed pressure on pricing, but this was counteracted by steady demand from the transformer oil segment and other applications used in infrastructure projects.
While the heavier grades lengthened on reduced seasonal demand from the tire and rubber segment, expectations of tighter market fundamentals next year encouraged producers to stand firm by their price indications and to evaluate contract commitments carefully.
Crude
Crude oil prices wavered over the last several days due to ongoing geopolitical tensions in the Middle East and demand concerns in China, the world’s top oil importer. Uncertainties about the potential impact of U.S. president-elect Donald Trump’s promised tariffs on imports of Canadian and Mexican oil and refined products impacted prices as well.
Early in the week, an unexpected draw in U.S. crude oil inventories pushed crude oil futures higher. The Energy Information Administration (EIA) reported a larger-than-expected decline of 5.1 million barrels in crude oil stocks for the week ending November 29, signaling tighter supply fundamentals.
On December 3, WTI January 2025 futures settled on the Nymex at $69.94 per barrel, compared to $68.77/bbl on November 26.
Brent futures for February 2025 delivery were trading on the ICE at $73.51/bbl on December 3, from $72.81/bbl on November 26.
Louisiana Light Sweet crude wholesale spot prices were hovering at $72.30/bbl on December 3, from $71.91/bbl on November 25, according to the EIA.
Low-sulfur diesel was at $2.18/gal at New York Harbor, $2.14/gal on the Gulf Coast and $2.24/gal in Los Angeles on December 3, compared to $2.23/gal, $2.17/gal and $2.32/gal, respectively, on November 25, according to the EIA.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com
Posted Paraffinic Base Oil Prices: December 4, 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.
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Historic and current base oil pricing data are available for purchase in Excel format.
*ExxonMobil prices obtained indirectly.
**Rerefiner
