Many base oil producers and consumers have been busy building inventories to meet product needs should output disruptions occur during the hurricane season in the Atlantic basin.
Some buyers have also replenished stocks that were used up to produce lubricants and other finished products in the previous two months ahead of the summer driving season. These factors, together with plant maintenance turnarounds, have contributed to a tightening of most base oil grades, with little to no surplus noted for the light viscosity cuts in particular.
Domestic demand, healthy export business and recent production outages at a number of API Group I and Group II plants were said to have caused the overall tightening of supplies. These conditions have driven spot indications up, especially for the light grades, which saw increases of a few cents per gallon week on week.
At least two recent plant shutdowns and an ongoing turnaround have contributed to the more limited availability of Group I and II grades.
It was heard that the Excel Paralubes Group II plant in Lake Charles, Louisiana,
started a maintenance program in mid-June that was expected to last until early July, reducing the spot availability of Group II grades, while contractual obligations would continue to be met, according to sources. Direct confirmation from the producer could not be obtained by publishing deadline.
In May, Paulsboro completed a short shutdown at its Group I plant and was heard to continue building inventories following the resumption of production. This has allowed the supplier to offer export cargoes this month. Group I export volumes remained generally snug from most United States producers. Motiva also completed a brief maintenance program on its Group II light viscosity lines last month, and these cuts were therefore less readily available. Spot supplies for Group II grades were described as scarce.
Group II spot export activity has been less intense than earlier in the year. Extra supplies have been trimmed due to the turnarounds and suppliers focusing on building inventories ahead of and during the hurricane season along the U.S. Gulf Coast. That season started this month and was expected to be extremely active this year, according to several weather monitoring agencies. Several storms and severe weather systems have already caused flooding, evacuations and heat waves in many parts of the U.S. over the past two weeks.
Most suppliers reported limited spot availability, and interest in moving products to destinations such as India has subsided given less attractive pricing compared to other regions such as Europe and Latin America. Another factor is that demand in India weakened due to the start of the monsoon season.
A number of export shipments were being discussed, including a 3,000 metric ton cargo quoted for possible lifting in Paulsboro, New Jersey, to Singapore in July. A second parcel of 3,000 tons was also mentioned for shipment from Paulsboro to Antwerp-Rotterdam-Amsterdam for any July dates. A 4,000-5,000 ton lot was considered for shipment from Port Arthur, Texas, to Greece or Turkey for late June dates. There was also mention of a possible import cargo of 4,000-5,000 tons that may be shipped from Kalundborg and Aabenraa, Denmark, to Savannah, Georgia, in the second half of July. Participants said that there has been increased buying interest in rerefined base oils given the snug supply conditions in the U.S.
While several Mexican buyers were reportedly inquiring about spot cargoes of Group I and Group II grades, availability of U.S. material was not abundant, and this supported current price ideas. There had been a product build in Brownsville a few weeks back as product was held there while new import licenses were being processed. However, these volumes have been cleared, and availability at the border has tightened.
Buying appetite on the West Coast of South America and Brazil appeared to be constant, but there have also been attractive offers of Asian product competing with U.S. exports. It was heard that a 5,000 ton cargo consisting of two base oil grades was likely to be shipped from Onsan, South Korea, to Rio de Janeiro, Brazil, in July, and other discussions were ongoing.
Group III grades appeared to be balanced in the U.S. as domestic production continued at a steady pace, imports were plentiful, and demand remained steady. There were reports of some shipment delays from a Group III supplier, but other sellers were able to offer ample supplies of most grades. A slightly tighter supply scenario, together with climbing crude oil prices, were placing upward pressure on Group III pricing.
On the naphthenic base oils front, the lighter grades were described as snug due to recent robust activity, namely from the transformer oil and adhesives sectors, while the heavier grades have started to lengthen, placing pressure on prices. This trend was partly offset by climbing crude oil values and flourishing interest from Europe and Latin America.
A naphthenic base oil producer was heard to be building inventories following an unexpected brief shutdown earlier this month. The balance of the suppliers were heard to be running at top rates given robust demand and attractive margins for the lighter grades.
Producers were keeping a watchful eye on crude oil futures because values tumbled in late May but have been catapulted to higher levels by forecasts of strong global demand during the second half of the year and ongoing geopolitical tensions in the Middle East. West Texas Intermediate and Brent crudes were poised to see a monthly gain of 4.9% and 4.1%, respectively, on Tuesday, according to CNBC.com.
Crude oil futures rose about 1% on Monday, driven by the prospect of strong summer fuel demand, rising tensions on the Israel-Lebanon border and drone attacks on Russian refineries that led to concerns about supply. An easing of the U.S. dollar offered additional price support. However, values slipped on Tuesday, failing to maintain upward momentum as traders liquidated recently acquired long positions and consumer confidence weakened slightly.
On Tuesday, June 25, West Texas Intermediate August 2024 futures settled on the Nymex at $80.83 per barrel, compared to $80.71/bbl on June 18.
Brent futures for August 2024 delivery were trading on the ICE in London at $84.99/bbl on June 25, compared to $85.33/bbl on June 18.
Downstream, the summer driving season and increased numbers of oil changes continued to support finished lubricant demand, although suppliers still felt on edge regarding consumption, as conditions have been volatile and unpredictable since the coronavirus pandemic. Ongoing competition among suppliers has hampered the implementation of some of the announced lubricant price increases for May and June, which were meant to offset March and April base oil posted price increases. Additive suppliers had also hoped to increase prices by 8% to 10% in May.
Several finished products manufacturers, including at least two majors, made overtures towards the implementation of increases between 10% and 15% in May or June. Suppliers encountered resistance to these initiatives, and some of the intended increases have either been reduced or postponed.
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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