Most paraffinic base oil producers and rerefiners have implemented posted price decreases on their base oil grades this month, with the exception of Group I, which were not revised. The decreases went into effect between September 1 and 10.

Motiva, Chevron, Excel Paralubes, Calumet, ExxonMobil and Petro-Canada communicated Group II posted price decreases of 18 cents, 20 cents, 30 cents, 40 cents and 50 cents/gal, depending on grade and supplier, with the heavier grades generally showing the larger decreases. Group II+ suppliers and rerefiner Safety-Kleen lowered postings by 15 cents/gal, 20 cents/gal and 40 cents/gal, varying according to the grade. Group III prices were reduced by 15 cents and 25 cents/gal.

The lower posted prices, together with slowing demand as the peak summer driving season has come to an end, were exerting pressure on spot and export prices. Buying interest from Brazil, Mexico, India and Europe was present, but participants were generally holding off on making firm bids because they expected export prices for U.S. cargoes to soften as decreases on domestic posted prices have been implemented and crude oil values have slipped. Additionally, U.S. Gulf producers typically start to clear inventories that have been built ahead of the hurricane season once the most active period for storms wraps up at the end of September, and buyers hoped to be able to secure competitive offers then.

In Mexico and other Latin American countries, there were reports of ongoing offers for Asian material, but steep freight rates made most transactions unworkable, although some deals may manage to be finalized in the coming weeks. Some Group III offers of Asian origin have also surfaced in Brazil.

While conditions were still balanced-to-long for Group I and Group II grades in the U.S., there has been increased supply of Group III cuts as global production was outpacing demand, despite increased consumption from the automotive industry. Domestic production of Group III grades has grown in recent months and this added to an already amply-supplied segment.

Domestic supply of Group II/Group III grades may be reduced in October as the Chevron plant in Richmond, California, was heard to have been scheduled for a three-week turnaround.

Naphthenic

Naphthenic producers were more reluctant to decrease prices because naphthenic base oil values had been comparatively lower than paraffinic prices, and demand held up better as well. Export activity was robust, offering further support to pricing.

Supply and demand fundamentals for pale oils were described as balanced-to-tight, as consumption remained healthy in some segments such as the lighter oils. However, as crude oil prices dropped and demand slowed, most naphthenic suppliers eventually acquiesced and announced decreases of 20 cent/gal to be implemented during the second half of September. San Joaquin Refining has so far not issued any general price decrease announcements, as the producer continues to monitor crude oil price developments and reports a balanced supply-demand position.

Participants also said that a number of naphthenic base oil contracts that are tied to a diesel index may have seen downward adjustments given lower feedstock values in the previous weeks.

Ergon announced a decrease in pricing of naphthenic oils in the North American market, effective September 16. The company’s dielectric fluids, naphthenic base oils and process oils were reduced by 20 cents/gal.

Process Oils Inc. also announced an across-the-board decrease in pricing of naphthenic oils of 20 cents/gal, effective September 16. 

Calumet communicated a 20 cents/gal decrease on all of its naphthenic grades as well, to be implemented on September 19. Calumet reported that the company’s naphthenic and paraffinic base oil plants, which are located in Princeton and Shreveport, Louisiana, felt no impact from Hurricane Francine last week.      

Disruptions

There were reports that ExxonMobil’s Group I plant in Baton Rouge, Louisiana, reduced operating rates ahead of the storm, but production was expected to be ramped up this week, although this was not confirmed by the producer directly as the company does not comment on the status of its operations.

Some logistics disruptions were also noted at the Port of New Orleans, Louisiana, which shut down ahead of the storm and remained closed until September 13. Other Louisiana shipping hubs that handle oil and gas, chemicals, coal and grain cargoes that were forced to close included ports in Plaquemines, Cameron, Lake Charles and Houma. 

Base oil market participants had been keeping an anxious eye on Francine, which made landfall as a Category 2 hurricane in Louisiana on Sep. 12, bringing heavy rainfall across parts of Louisiana, Mississippi, Arkansas, Tennessee, Alabama, Georgia and the Florida Panhandle and leaving many households and businesses without power. Several refineries along the U.S. Gulf Coast had implemented storm preparedness plans and about 33% of total oil output in the Gulf of Mexico was shut down ahead of the hurricane, making crude oil prices spike. On Tuesday, 20% of crude oil and 28% of natural gas output was still offline in the Gulf of Mexico.

Crude

Crude oil futures have been very volatile since August, pressured by fears of a drop in demand from China—the world’s largest oil importer – and of an increase in OPEC+ oil output. However, OPEC+ agreed to pause its scheduled crude production hike of 180,000 barrels per day in October and November to support crude prices. In its latest Oil Market Report, the International Energy Agency revised down its outlook on global oil demand, pointing to slower Chinese demand growth as one of the main reasons for the downward revision.

Crude oil futures climbed to above $71 per barrel on Tuesday, on growing optimism that the U.S. Federal Reserve would cut interest rates this week, and as approximately 100,000 barrels per day remained offline in the Gulf of Mexico.

On Tuesday, September 17, WTI October 2024 futures settled on the Nymex at $71.19/bbl, compared to $65.75/bbl on September 10.

Brent futures for November 2024 delivery were trading on the ICE at $73.70/bbl on September 17, compared to $69.56/bbl on September 10.

Louisiana Light Sweet crude wholesale spot prices were hovering at $72.80/bbl on September 16, from $71.65/bbl on September 9, 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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