The Group II 100 grade has been tight for some time, and the major producer was unlikely to adjust prices down. “They have been trying to buy 100 from other suppliers. Everyone is tight on 100,” a source emphasized. Another producer, who recently resumed production at its base oils plant after a second shutdown in six weeks, has almost no availability of any grade, sources added.

Base oil buying activity started to slow down more noticeably over the last couple of weeks, with buyers and sellers having already built inventories for hurricane season and lubricant demand remaining sluggish. The light-viscosity grades appeared to be less available than the heavier grades, with Group I bright stock, which had been tight so far, showing some length as well. Domestic spot prices for most Group I and Group II grades also edged down by about 2 cents/gal, week on week, according to sources.

Both producers and consumers were expected to hold on to current inventories until the end of the hurricane season to cover requirements should severe weather disrupt production along the United States Gulf Coast. Most of the storms occur between August and September, but the hurricane season officially stretches into the end of November.

Many suppliers start to clear inventories in October, flooding the market with product, which typically results in downward price pressure. This year, downstream conditions weren’t as healthy as in years past, and demand for base oils has therefore been softer, likely leading to product surpluses and price decreases earlier than usual.

Sources commented that Group II prices succumbed to downward pressure because of a narrowing spread with Group III grades, as prices for these cuts started to move down, and this prompted some blenders to use more Group III grades in lieu of Group II cuts in some lubricant applications.

The Group III 6 cSt and 8 cSt grades were tighter than the 4 cSt grade, but all the Group III cuts were exposed to downward price pressure for several weeks as supplies grew given robust domestic production and recent cargoes moving to the U.S. from Asia and the Middle East. There were expectations of increased availability of Asian products as demand in that region weakened and supplies became more plentiful. Domestic spot prices for Group III grades were heard to have slipped by 5 cents/gal to 7 cents/gal from the previous week.

While domestic Group I, Group II and Group III spot prices were revised down over the last few weeks, Group I and Group II export transactions happened at steady levels given healthy interest from Europe and Latin America.

There was keen buying interest for Group I cargoes from Europe, the Middle East and Africa, and sustained trading of U.S. Group I and Group II cargoes with Mexico, as demand has shown an uptick. Although, some Mexican buyers preferred to hold off on purchases on expectations that U.S. prices would move down in the coming weeks.

In shipping circles, there was mention of a 10,000-metric-ton parcel likely to be shipped from Paulsboro, New Jersey, to Apapa or Calabar, Nigeria, in the second half of September. An 8,500-ton lot was also quoted for shipment from Paulsboro to Lagos, Nigeria, in Sept. A 4,000-ton cargo was expected to be shipped from Port Arthur, Texas, to Yanbu, Saudi Arabia, in early September, likely for intra-company business.

In Brazil, appetite for U.S. cargoes has re-emerged after declining in the previous two months on sufficient inventories and adequate availability of domestic base stocks. However, there were concerns that locally produced base oils would not be sufficient to meet revitalized demand. About 1,000-3,000 tons of base oils were anticipated to be shipped from Houston, Texas, to Rio de Janeiro, Brazil, at the end of August. A 4,000-ton cargo was mentioned as having been shipped from the U.S. Gulf to Brazil on August 10-11.

Naphthenic

On the naphthenic base oils front, supply and demand remained fairly balanced, with the lighter grades showing less availability than the heavier cuts. Demand of these grades has started to soften as the summer driving season is ending and there will be less demand from car manufacturers for tires and rubber products.

Continuing buying appetite for U.S. naphthenic oils from Europe and Latin America was helping U.S. suppliers maintain more balanced inventories and was also buoying domestic prices.

Domestic buyers expected decreases for naphthenic oils because of lower crude oil values since April, when the last naphthenic price adjustments took place. Some contracts are tied to a diesel index, and this has led a number of accounts to see downward adjustments. However, suppliers were generally standing firm by their pricing as they were not under inventory pressure and oil futures had fallen earlier in the month, but have recovered since then.

Indeed, heightened attention was focused on crude oil developments, as oil futures showed sharp fluctuations in August. Last week, oil prices fell on expectations that Israel and Hamas would accept a proposal for a ceasefire deal in the Middle East. The deal did not materialize and prices surged earlier this week, as concerns that the conflict between Israel and Iran would escalate as Iran vowed retaliation against Israel over the assassination of Hamas leader Ismail Haniyeh in Tehran. There were also expectations that OPEC might decide to maintain current output levels in its next meeting.

Crude

On Tuesday, crude oil futures edged up in early trading, gaining 3% to reach two-week highs amid reports of a production halt in Libya and after Israel and Hezbollah traded a barrage of strikes across the Lebanon border, according to CNBC news. However, prices fell by about 2% later in the day on worries that slower economic growth in the U.S. and China could dampen demand for energy, particularly after prices had surged during the prior three days.

On August 27, WTI October 2024 futures settled on the Nymex at $75.53 per barrel, compared to $74.04/bbl on Aug. 20.

Brent futures for October 2024 delivery were trading on the ICE at $78.85/bbl on Aug. 27, compared to $77.20/bbl on Aug. 20.

Louisiana Light Sweet crude wholesale spot prices were hovering at $80.15/bbl on Aug. 26, from $77.07/bbl on Aug. 19, according to the U.S. Energy Information Administration.

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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