While lubricant demand has not been particularly strong – and many blenders, in fact, have seen consumption levels down by 2-3% compared with last year – most base oil buyers have been taking their contract volumes each month to ensure they would have sufficient supplies should any disruptions emerge.

The API Group I and Group II segments were snug, and spot availability remained limited, pushing spot indications up by about 5 cents per gallon to 8 cents/gal from the previous week. Group II light-viscosity grades saw the highest upward adjustments as these cuts were less readily available.

Buyers and suppliers have not only been keeping beefier stocks, but they have also been diversifying their sources of raw materials, so as not to have all of their suppliers located in the same area, particularly if this area is prone to severe weather.

“Your plant may be out of the flood zone, but then, if you cannot get rail shipments or you have a power outage, you cannot service your customers,” one source explained.

The Group III segment has also been tight, but the imminent arrival of a delayed Middle East Group III cargo this week was expected to alleviate some of the tightness and has placed downward pressure on spot prices. Plentiful supplies from domestic producers have also helped keep the market from experiencing shortages, but some producers may switch to increased Group II output, thereby restricting Group III production. A domestic producer was also heard to be holding most of its Group III output to feed downstream operations.

Supplies were anticipated to be snug for some time as producers were also keeping extra volumes on hand, and export business has been buoyant. Buying appetite for Group I grades from Europe was said to be robust, although there were signs that activity in that region has begun to decline due to the start of the summer holidays.

Likewise, there has been strong interest for U.S. cargoes from Mexico, as Mexican lubricant demand was said to be steady and blenders were eager to secure material to sustain operations, should any disruptions occur in the U.S. during the hurricane season. Buyers appeared more receptive to current U.S. prices because there were few alternatives, with freight rates for cargoes from more distant sources such as Asia having increased dramatically in recent months. Most import licenses have also been processed, allowing for a shorter lead time to receive U.S. shipments.

There has also been decent buying appetite for U.S. cargoes from West Coast South America and Brazil, although increased production from the main Brazilian base oil producer helped cover most domestic requirements at a time when lubricant demand has not been particularly robust.

In terms of rerefined base oils, demand has also been strong, with at least one rerefiner reporting record run rates. At the same time, participants noted high used-oil collection rates, which has led that market to become oversupplied. Used oil collectors were heard to be eagerly looking for a home for their surplus volumes.

On the naphthenic base oils side, business continued to be described as healthy, with demand for the light grades still taking center stage. Availability of the heavy grades was slightly longer, but keen buying interest from Europe and Latin America allowed suppliers to keep fairly balanced inventories.

While there have not been any posted price changes for paraffinic base oils since April, one factor that participants on both the paraffinic and naphthenic sides kept a close eye on was crude oil values. West Texas Intermediate and Brent have fluctuated over the last week, with numbers climbing one day on geopolitical tensions and then falling the next on expectations of lackluster demand from China – the world’s top oil importer – due to signs of an economic slowdown.

On Tuesday, crude oil futures fell by 2% to the lowest levels since June on renewed ceasefire negotiations in the Israel-Gaza conflict and demand worries weighing on prices. U.S crude oil futures rose slightly in post-settlement trading as the American Petroleum Institute reported an unexpected decline in domestic weekly crude stocks, according to Investing.com.

On July 23, WTI September 2024 futures settled on the Nymex at $76.96 per barrel, compared with $80.76/bbl for August futures on July 16.

Brent futures for September 2024 delivery were trading on the ICE at $81.62/bbl on July 16, compared with $83.73/bbl on July 16.

Louisiana Light Sweet Crude wholesale spot prices were hovering at $83.65/bbl on July 22, from $85.92/barrel on July 15, according to the U.S. Energy Information Administration.

On the finished lubricants’ front, there has been talk about prices losing ground on account of competitive actions by a few suppliers, despite the fact that blenders felt the need to offset base oil and additive price increases implemented back in March and April.

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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