Meanwhile, there have been few surprises in terms of base oils supply conditions. Most segments continued to show fairly balanced fundamentals, with requirements described as steady, but not particularly robust.

A key API Group I producer has been utilizing more of its base oils output internally, limiting its ability to offer additional cargoes for export. The Group I sector was generally said to be balanced-to-tight, with a few cargoes making their way to Mexico. Mexican demand for U.S. base oils has partly been covered by Group II cargoes, as a producer was heard to have offered extra volumes for export.

U.S. suppliers have also been entertaining opportunities to ship Group I base oils to Europe, where availability has declined given the current European Union ban on Russian imports of refined products. There has been talk about a potential free trade agreement between the EU and the U.S., which could increase volumes shipped between these regions, but a definitive agreement may take several months.

Steady interest from Brazil has been noted because a Brazilian refiner’s operating rates remained erratic and domestic prices have edged up. Aside from U.S. cargoes, there has been interest to move base oils from other regions into Brazil, with discussions said to be ongoing. In shipping circles, an inquiry to move 7,000 to 9,000 metric tons of base oils from South Korea to South America in May or June cropped up this week, but no further details were available.

Domestic demand for Group II base oils has seen an uptick, particularly from the automotive segment, where activity had been lackluster. Lubricant manufacturers may need to replenish stocks to cover requirements during the summer driving season as they had been holding off on purchases, or buying smaller cargoes, sources speculated. Higher Group III prices may also be acting as an incentive for blenders to maximize the use of Group II cuts.

Several Group II cargoes have been earmarked for India, Europe and Latin America in the last few weeks. This situation, together with a recent and an upcoming turnaround at a Group II facility, were keeping the Group II segment more balanced, although the high-viscosity grades such as the 600N were slightly longer.

While Chevron’s upcoming turnaround at its Group II plant in Pascagoula, Mississippi, in June was expected to tighten availability, the Excel Paralubes plant in Louisiana–which was recently restarted after an extended maintenance program–was heard to be running at top rates. As a result, more supplies were likely to come into the market in the coming weeks. Both the Chevron and the Excel Paralubes turnarounds involved catalyst changes, and this was likely to allow for increased output levels.

Supply and demand were also largely balanced in the Group III segment. A turnaround at a Group III facility in Spain, which started last week, was not expected to have a significant impact on European product availability nor on the company’s shipments to the U.S. The producer’s affiliated Group II+/III plant in South Korea – which is where the products shipped to the U.S. are manufactured – was likely to increase output to supplement the EU market during the turnaround and ensure there were no supply shortages in any region.

An upcoming turnaround at another South Korean facility was expected to tighten availability in Asia and possibly in the U.S., although the refiner has been building inventories to cover requirements during the outage. Supplies from the Middle East will likely not see any supply disruptions, while U.S. domestic production was also helping keep the Group III segment well-supplied.

On the naphthenic base oils front, prices were stable, but participants were watching developments on the crude oil and feedstocks side, as values remained volatile. The current price structure for naphthenic oils was supported by balanced supply and demand fundamentals, and participants did not expect to see any softening conditions in the near term. “Demand has been holding up. Not growing, but not shrinking either,” a source noted.

Suppliers also acknowledged that there may be some substitution with paraffinics in a few applications, given current price differences, and that this could slightly dampen demand. If this were the case, some price concessions may emerge, sources added.

Pale oil 60 and transformer oil demand has been very strong, with a supplier heard to be sold out, and other light cuts also said to be on the tight side. There was robust buying interest from Europe and Asia, contributing to the tightening of domestic inventories, but falling diesel prices might be placing pressure on numbers.

Downstream, lubricant manufacturers continued to grant discounts to protect or conquer market share. The lower prices have encouraged some buyers to secure additional volumes, and there was also a need to replenish stocks as consumption from a number of applications was starting to pick up. Blenders were also hoping to obtain additive price decreases, but there has not been wide implementation of price reductions at this point, although some decreases have been awarded into a number of large accounts.

Upstream, crude oil futures slipped on Tuesday as downbeat Chinese and U.S. economic data overshadowed positive forecasts from the International Energy Agency, which predicted higher global crude oil demand this year, particularly as countries stock up on oil ahead of the summer travel season in the Northern Hemisphere. Crude futures had climbed by more than one percent on Monday.

On May 16, West Texas Intermediate (WTI) June futures settled on the CME at $70.86/barrel, compared to $73.71bbl on May 9.

Brent futures for July delivery settled on the CME at $74.91/barrel on May 16, from $77.44/bbl on May 9.

Louisiana Light Sweet crude wholesale spot prices were hovering at $73.57/barrel on May 15, from $75.38/bbl on May 8, according to the 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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