Tumbling crude oil prices the previous week had turned some buyers cautious because the lower values might have driven base oil prices down, with Brent crude closing at its lowest since February, but futures recovered over the week as earlier concerns about oversupply have faded.

Crude oil futures edged higher on Tuesday as the United States Energy Information Administration raised its global oil demand growth forecast for the year, while OPEC maintained its forecast for relatively strong growth in 2024.

On Tuesday, June 11, West Texas Intermediate July 2024 futures settled at $77.90 per barrel, compared to $73.25/bbl on June 4, and had closed at $79.83/bbl on May 28. 

Brent futures for August 2024 delivery were trading on the ICE at $81.92/bbl on June 11, compared to $77.19/bbl on June 4, and had traded at $84.48/bbl for July futures on May 28. 

Within the Group I segment, suppliers reported an overall tightening of most grades, given healthy domestic demand and brisk export transactions to destinations in Europe and Latin America, where Group I availability was snug. There was buying interest on the West Coast of South America for Group II cuts, but given limited spot supplies in the U.S., Asian suppliers may be stepping in to fill the supply gap.

A U.S. Group I producer, Paulsboro, was heard to be building inventories following a brief turnaround in May and was expected to be able to start offering export cargoes this month.

Mexican buyers were on the lookout for U.S. Group I parcels as local availability has tightened and spot prices have inched up in the U.S., fueling expectations that values may continue on an upward trend in the coming weeks. Limited availability of Group II grades was driving prices up as well. Re-refiners were also helping fill some of the supply gaps for a number of grades, and they confirmed seeing increased demand since April.

The domestic Group II segment also showed signs of tightening from a partial shutdown at Motiva’s Group II facility last month which was heard to have only affected the low-viscosity grades. Most Group II suppliers were reported to have little to no extra spot supplies of the light grades and export business has almost come to a standstill as a result. Spot prices for Group I and Group II light grades have inched up by 3 cents/gal to 5 cents/gal week on week.

Refiners along the U.S. Gulf Coast were also making sure that they would be able to continue meeting requirements should severe weather disrupt their operations, so they were building inventories. The Atlantic hurricane season running from June 1 to November 30 was predicted to be a very active one this year, according to various weather forecast entities, and buyers and sellers wanted to be prepared. However, many participants also said that after experiencing hurricanes and winter storms in the past, they had diversified the supply base of raw materials to avoid possible shortages should certain producers suffer output disruptions.

Availability of most Group III grades was ample, as domestic producers continued to manufacture plentiful quantities, while import volumes were anticipated to increase in the coming weeks, with additional cargoes due to arrive from Asia and the Middle East. U.S. prices were higher than in other regions, attracting an increasing number of cargoes, and there was growing spot availability in Asia as demand has started to decline. Spot prices for the Group III 4 centiStoke grade were more exposed to downward pressure on increased supplies, while the 6 cSt and 8 cSt grades were fairly stable.

On the naphthenic base oils front, there has also been some tightening caused by an unexpected shutdown at a naphthenic producer’s plant, but operations were expected to have been restarted. Vigorous demand for the light grades from the transformer oil segment has also contributed to the snug conditions, offering support to current pricing. Healthy buying appetite from Central and South America and Europe also led to a further tightening of these grades.

The heavier pale oils, on the other hand, have experienced some lengthening and prices were therefore exposed to downward pressure. This was accentuated last week by falling crude oil and feedstock values, but this trend reversed course during the week and crude oil prices have recovered some of the lost territory. Some refineries were being run at full rates given growing demand for refined products, leading to plentiful supplies.

Discussions among blenders and finished products manufacturers continued to center on the fact that many suppliers have been unable to transfer recent base oil and additive price increases down the supply chain. Base oil producers introduced increases in March and April, and additive suppliers have announced price markups within a range of 8% to 10% for May implementation. Competitive movements among suppliers given plentiful availability and lackluster demand hampered the implementation of proposed finished products price increases in May and June.

Several finished products manufacturers, including at least two majors, are seeking price increases to offset the higher cost of base oils, additives, packaging and transportation, with the initiatives calling for increases between 10% and 15%. Some of the increases were being implemented, despite consumer resistance and ongoing competition among sellers. A number of suppliers remained on the sidelines, monitoring increase implementation rates before deciding whether to attempt a price adjustment of their own.

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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