There has been a slight uptick in base oil orders, although demand was still lagging compared to the same month in previous years. Economic uncertainties and ample inventories continued to muffle lubricant consumption, and this, in turn, resulted in subdued base stock requirements. However, base oil suppliers remained optimistic that consumers would soon have to replenish stocks and the recent posted price decreases would offer additional incentives for them to venture back into the market and increase order volumes. Consumers, on the other hand, appeared comfortable securing just enough product to run daily operations, and kept an eye on slipping crude oil values.
Base oil suppliers had hoped that lowering posted prices would spur more demand at a time when requirements should have flourished. They implemented posted base oil price decreases of 15 cents per gallon to 40 cents/gal, depending on the grade and the supplier, between March 28 and April 25. However, there were still few signs that demand had started to take off in earnest, particularly in the automotive segment, despite the approach of the summer driving season.
The start of the hurricane season in the Atlantic basin (which runs from June 1 until Nov. 30) was anticipated to prompt some players to begin padding inventories to cover requirements in case of potential output disruptions during severe weather. However, the National Hurricane Center – which begins issuing regular Tropical Weather Outlooks on May 15 – predicted a slightly below-average number of hurricanes and tropical storms this year, which might discourage base oil market participants from carrying hefty inventories.
For the moment, most base oil segments appeared to be well-supplied, but an upcoming turnaround at a key API Group II facility might lead to a tightening of spot availability.
Chevron was heard to be building inventories ahead of a planned turnaround at its Group II plant in Pascagoula, Mississippi, starting in June. The unit was expected to be off-line for maintenance and a catalyst change for about three weeks. The shutdown was heard to have been postponed from an original date earlier in the quarter, but details were not confirmed by the producer directly.
The Chevron turnaround will follow a turnaround at another key Group II facility, the Excel Paralubes plant in Lake Charles, Louisiana, which completed an extended maintenance program in April, including a catalyst change. The supplier was meeting contract commitments as scheduled, but has not been able to offer spot supplies, according to sources.
Some participants worried that increased production, thanks to the new catalysts, would lead to an oversupply of Group II grades in the domestic market, but producers appeared to have been making provisions by shipping product to other regions to avoid a product overhang. As mentioned last week, a 16,000-metric-ton cargo was quoted for lifting in Houston, Texas, to Mumbai during the first week of this month, and another similar shipment was being worked on. Additionally, about 38,000 tons were heard to have been shipped from Pascagoula to Le Havre, France, and Antwerp, Belgium, in early April.
The Group I segment was described as generally balanced, although the heavy grades and bright stock appeared to be lengthening. Suppliers have explored export opportunities to ship base stocks to Europe, Mexico, Brazil and other destinations in Latin America.
Brazilian domestic production rates remained unpredictable and buying appetite for imports was strong. Details of 2,000-ton cargo that was shipped in early April from Houston, Texas, to Santos, Brazil, emerged this week. There was also mention of a 4,000-ton parcel for possible shipment from West Coast India to Rio de Janeiro, Brazil, in May. A 5,000-ton lot was also discussed for lifting in the United Arab Emirates to Brazil during the second half May to the first half of June.
Within the Group III category, upcoming turnarounds in Asia might lead to tightening supply in the second quarter, although heightened domestic production of Group III grades was helping keep this segment well supplied. Buying interest from Europe was also diverting some cargoes to that region away from the Americas. Demand for the 4 centiStoke grade was steady but not particularly robust, as base oil consumption in the automotive sector has been lackluster. There appeared to be ample availability of the 6 cSt and 8 cSt grades.
In the naphthenic base oils camp, prices were stable, supported by feedstock prices and balanced-to-snug supply and demand. Healthy requirements from Europe and Asia along with firm prices in those regions encouraged suppliers to conclude export business, and this contributed to the tightening of some of the pale oil grades in the U.S., particularly as demand from the transformer oil segment was strong and the availability of heavy grades was gradually getting more limited as well.
Lubricant manufacturers have not seen a significant change in market dynamics, with demand still lagging compared to the spring season of previous years. Suppliers have not communicated any price adjustments since January, when only two major manufacturers announced lubricant price decreases. Suppliers were evaluating market conditions, but no official price revisions were communicated by the publishing deadline. Sources said that some discounts were being granted on a case-by-case basis, particularly when a supplier sought to regain market share. Blenders were also disappointed that additive producers have not adjusted prices down, despite ample supply, with the exception of discounts awarded into a number of accounts, depending on volumes and other terms.
In other industry news, Chevron has increased exports of crude oil from Venezuela since January, according to online newsletter MarineLink. Back in November, Chevron became the first U.S. producer to get a license from the U.S. Treasury Department to resume oil output and exports from Venezuela after a three-year pause triggered by U.S. sanctions. According to the MarineLink article, in April, Chevron loaded about 148,000 barrels per day of oil at Venezuelan ports, with cargoes ostensibly going to at least three other U.S. refiners – PBF, Marathon and Valero – besides Chevron’s own refinery in Pascagoula, Mississippi. Chevron said it conducts business in compliance with all laws, regulations and a sanctions framework provided by the U.S. Office of Foreign Assets Control. The Venezuelan oil shipments should help ease tight supplies of heavy sour crude oil in the U.S.
In terms of crude oil prices, futures fell sharply on Tuesday, with West Texas Intermediate slumping by $4/barrel on concerns over the economic impact of the U.S. Federal Reserve potentially raising interest rates on Wednesday and on weaker Chinese manufacturing data. These factors outweighed price support from declining U.S. crude inventories and new OPEC+ supply curbs being implemented this month.
On May 2, West Texas Intermediate (WTI) June futures settled on the CME at $71.66/barrel, compared to $77.07/bbl on April 25.
Brent futures for July delivery settled on the CME at $75.32/barrel on May 2, from $80.77/bbl for June futures on April 25.
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.
Archived base oil price reports can be found through this link: https://www.lubesngreases.com/category/base-stocks/other/base-oil-pricing-report/
Historic and current base oil pricing data are available for purchase in Excel format.