It’s Not the Same as It Was

The price revisions reflected conditions that are not atypical at the end of the year, as demand tends to decline following a busier spring/summer season and inventories start to grow. A need to clear inventories held during hurricane season—which officially ends on Nov. 30—also drives suppliers to pursue increased business opportunities by lowering posted and spot prices.

Downstream, competitive movements among lubricant suppliers to maintain or gain market share exerted pressure on the price of lubricants, greases and other finished products.

The lower base oil demand was attributed to several factors, including longer drain intervals for newer car models, a gradual growth in electrification and the postponement of oil changes due to economic reasons, particularly in applications such as heavy-duty vehicles and farm equipment. Blenders reported an average drop in lubricant demand in the range of 8%-10% from last year—which had already seen significant reductions compared to 2020 baseline figures—with the biggest decline observed in the first quarter of 2024. 

While the Group I grades finished the year mostly balanced against demand, Group II cuts had started to lengthen as suppliers released additional cargoes into the market. However, an unexpected shutdown at the Excel Paralubes Group II/Group III plant in Lake Charles, Louisiana, in late November tightened supplies. 

As Chevron was also preparing for a turnaround at its Group II plant in Pascagoula, Mississippi, in the first quarter of 2025, and was expected to build inventories to cover requirements during the outage, a further tightening of Group II spot supplies may occur. 

Meanwhile, Group III base oil prices stabilized in late November and early December on reduced output at domestic plants and suppliers’ hesitation to adjust prices further. Increased buying interest for Group III grades was triggered by competitive pricing against Group II grades. Availability of most cuts was deemed plentiful and was expected to remain ample thanks
to the expected arrival in the Americas of South Korean and Middle Eastern cargoes. 

Since domestic spot base oil demand in general was not anticipated to improve until the first quarter of 2025, suppliers set their sights on export opportunities, but these seemed somewhat elusive.

Business into Mexico was described as fairly steady, but U.S. suppliers acknowledged that fewer light-viscosity cargoes were being shipped than in recent years because of controls imposed by the Mexican government on base oils used as fuel extenders, although some argued that the restrictions had not been effective. Sources said that shipments of the premium grades and lubricants for factory-fill applications continued unabated because of growing car manufacturing in Mexico, with several operations having been moved to the neighboring country. There were expectations that exports to Brazil and India would also see an uptick in December and January, as consumers needed to replenish stocks and U.S. suppliers appeared more receptive to offering attractive pricing.

On the naphthenic base oils front, there was less price pressure on values than on the paraffinic side because of better-balanced conditions, especially for the light-viscosity grades. Volatile crude oil prices placed pressure on pricing, but this was offset by steady demand from the transformer oil segment and other applications used in infrastructure projects. 

While the heavier pale oil grades were more abundant on reduced seasonal demand from the tire and rubber segment, expectations of tighter market fundamentals in 2025 encouraged producers to stand firm by their price indications and to evaluate contract commitments carefully.

One of the areas that was anticipated to gain more traction was rerefining, given increased efforts by government entities and private producers to support sustainability efforts and a circular economy. Experts agreed that state mandates for the recycling of used oil were needed to promote more investments in the U.S. Even so, several plant expansions were in the pipeline for 2025.

A big question mark remained for crude oil prices, which showed acute volatility in the second half of 2024, as they were impacted by geopolitical tensions in many parts of the world amid concerns about global oil demand. West Texas Intermediate front-month futures settled at $67.20 per barrel on Dec. 6, from $72.36 per barrel on Nov. 7. Crude oil markets were also anticipated to see strong fluctuations in the new year.