While most segments of the United States base oils market seemed to move at a slower pace as the summer driving season wound down, the unplanned extension of a turnaround and upcoming maintenance programs were expected to tighten supply, although availability of most grades was deemed plentiful. Crude oil prices also reversed course, jumping by more than 4% on Tuesday on expectations of reduced supply.
Most suppliers reported balanced to slightly long supply levels, with some sectors showing a sudden tightening as a major API Group I/Group II producer was heard to have had to extend a turnaround that had started earlier this month. The extension was heard to be related to an equipment failure, and while the producer was limiting availabilities as a result, customers have not been placed under sales control or allocation, according to sources. The producer also planned to start a turnaround at a second Group I base oils unit in the first quarter of 2023.
Other suppliers mentioned receiving inquiries for API Group I SN150 and Group II grades from buyers who typically receive product from the affected producer. The tighter conditions were cited as a factor impacting posted prices, as most producers hesitated to adjust prices despite the recent drop in crude oil and vacuum gas oil.
The softer feedstock values seen earlier in August had been one of the main reasons for the decrease in naphthenic base oil pricing. Producers Ergon, Calumet, Cross Oil and San Joaquin Refining all decreased prices by 30 cents per gallon between Aug. 5 and Aug. 10. Demand in this segment was described as steady and supplies were balanced-to-tight. A producer was heard to have shut down its plant unexpectedly last week and was anticipated to remain offline until early September.
Base oil consumers had plentiful supplies, given that they had padded inventories earlier in the year to cover potential supply shortages in case of a hurricane along the U.S. Gulf Coast. Severe weather is common during August and September in the Atlantic Basin and several base oil plants are located near the coast, exposing them to potential output disruptions due to strong winds and flooding.
While paraffinic producers have dug their heels in and hoped to delay posted price decreases as long as possible, buyers reported that some temporary voluntary or value adjustments in the realm of 10 cents/gal to 50 cents/gal had been granted. Spot prices have come under pressure, and sellers felt the need to adjust them down to conclude export transactions, as prices have slumped in other regions. However, availability of export parcels was limited.
Suppliers argued that decreasing posted prices does not necessarily translate into more sales, as demand typically suffers a seasonal slowdown in the last few months of the year and there is not much they can do to change that. Some refiners might consider lowering run rates instead. At least one Group II/Group III producer has planned a turnaround in October, and other maintenance programs are scheduled for the first quarter of next year.
On the export front, Mexican buyers were looking for opportunities to secure product at competitive prices, or postponed purchases in hopes that prices would continue to soften. It was heard that Northeast Asian cargoes were on their way to Brownsville and that this would exert further pressure on spot indications. U.S. sellers resisted some of the lower bids but seemed willing to trim prices slightly in order to conclude business if they had any availability. Buying interest from Brazil was robust, but logistical issues were hampering transactions.
A number of U.S. suppliers noted that they were unable to offer any export volumes at this time, and there were reports of a couple of small Group II heavy-viscosity base oil parcels having been sold for export earlier this month, but no additional offers surfaced. Group III supplies were deemed adequate to cover domestic demand, which remained steady despite downstream raw material shortages.
Lubricants and finished products manufacturers were dealing with a scarcity of additives, after Afton Chemical declared force majeure on additive production following flooding at its plant in Sauget, Illinois, on July 26. The force majeure came of the back of lingering supply issues affecting the additives segment since late 2019. Some blenders have been placed on up to 50 percent allocation for the next two months, while others said the impact had been minimum as they do not depend on just one supplier. A second additive manufacturer was also heard to be running its plant at reduced rates.
In view of the sparse supplies and climbing production costs, an additive supplier has communicated a price increase of up to 15 percent for August, while a second additive supplier planned to mark up prices on Sept. 1.
Lubricant manufacturers implemented price increases in June, July and early August, at a number of suppliers intended to adjust values in September as well given mounting production costs. One supplier will be increasing prices by up to 15% on Sep. 1 and a second manufacturer plans to raise prices on Sep. 19, but the amount will vary depending on the product. According to reports, two grease manufacturers also intended to lift the price of greases made with lithium and lithium complex thickeners by 40 cents per pound due to price increases of these raw materials. It was also heard that some suppliers have delayed implementation or adjusted the amounts of the lubricant increases because of slowing lubricant demand.
Upstream, crude oil futures jumped more than $3 per barrel on Tuesday as traders focused on the possibility that global oil supply would tighten given suggestions by Saudi Arabia that OPEC+ would cut output to support prices. Expectations of a drawdown in U.S. crude inventories also gave prices a boost.
On Aug. 23, West Texas Intermediate (WTI) October futures settled at $93.74/barrel, compared to $86.53/bbl for September futures on Aug. 16.
Brent futures for October delivery settled on the CME at $100.22/barrel on Aug. 23, from $92.34/bbl on Aug. 16.
Louisiana Light Sweet crude wholesale spot prices were hovering at $96.02/barrel on Aug. 22, compared to $94.69/barrel on Aug. 15, 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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