With the end of the summer driving season and the Labor Day holiday just around the corner, it was not surprising to see activity in the base oils market moving at a more sedate pace. Additive shortages were also impacting base oil demand in certain segments, particularly those catering to the automotive industry. Refineries were running at top rates and this led to a lengthening of availabilities. However, several sectors still showed supply tightness as demand was steady and there were ongoing production issues.
A major United States API Group I and Group II refiner was heard to have extended a turnaround due to an equipment failure. According to sources, the producer was limiting availability and not entertaining additional or incremental orders, but customers have not been placed under sales control or allocation. The producer had built inventories ahead of the turnaround, which started two months ago, and was able to cover most requirements. It was also expected to start building inventories during the last quarter of the year as it has scheduled maintenance at a second Group I base oils unit in the first quarter of 2023.
A second refiner has slated a turnaround at its Group II and Group III base oils plant in October and was managing supplies carefully and building inventories to cover product requirements during the shutdown, sources said.
A third Group II producer has recently completed a turnaround and did not have much additional product to offer as it was rebuilding its stocks.
As a result, there were few cargoes for spot business, particularly of the Group I grades. Suppliers said they had turned down additional sales to buyers who typically purchase product from the producer whose plant was still down because they had no extra barrels to offer.
Most producers were focusing on meeting contractual obligations and spot volumes were limited, supporting current price ideas, although small downward adjustments between 5 cents and 15 cents per gallon were noted.
At the same time, lower price indications in other regions due to growing supply made it difficult for U.S. product to compete on the export front. There was ongoing buying appetite from Brazil, but it was not always easy to find enough product to meet the current demand and logistics were also challenging. Inquiries to move product from India to Brazil in September were being discussed in shipping circles. A 7,000-metric ton cargo was on the table for shipment from Mumbai to Rio de Janeiro, and a second parcel was heard discussed for delivery at a different Brazilian port next month as well. A 2,000-metric ton lot was also quoted for prompt lifting in Hazira to Rio de Janeiro.
Mexican buyers also expressed interest in U.S. cargoes, although bids were deemed too low by most suppliers. There were reports of a South Korean Group II cargo making its way to Mexico at attractive pricing, but demand in that country remained subdued and sources indicated that it might be difficult to finalize more business ex-Asia due to steep freight rates and other difficulties. However, some Northeast Asian suppliers were still exploring business opportunities into Latin America to lower inventories at home and reduce downward pressure on pricing. A 2,800-metric ton cargo was being discussed for shipment from Ulsan, South Korea, or Mailiao, Taiwan, to Callao, Peru, in late September or early October.
There were an increasing number of reports of domestic suppliers granting temporary value or voluntary adjustments to some of their accounts, with these adjustments ranging from 10 cents per gallon to 50 cents/gal. Meanwhile, posted prices remained unchanged since June.
While Group II supplies appeared slightly more accessible than Group I volumes, the market was by no means overflowing with product, sources noted, and suppliers did not feel pressure to lower posted prices for the time being. The 600N cut was the tightest at the moment and was expected to remain on the snug side as a key producer will be starting a turnaround in October as mentioned above.
Demand for the Group III grades was characterized as healthy, with no oversupply noted and imports deemed sufficient to meet most U.S. requirements.
Both producers and consumers continued to carry hefty inventories in case a hurricane were to disrupt production along the U.S. Gulf Coast. The U.S. Energy Secretary also urged oil refiners not to increase exports of gasoline and diesel and build inventories so as to ensure enough supply during the hurricane season, which ends on Nov. 31. Atmospheric and oceanic conditions still favor an above-normal 2022 Atlantic hurricane season, according to the National Oceanic and Atmospheric Administration’s annual mid-season update.
On the naphthenic base oils side, prices were stable, following a 30 cent-per-gallon decrease implemented between Aug. 5 and Aug. 10. Supplies were balanced-to-tight against demand, while a producer’s unexpected shutdown in mid-August might result in tighter conditions as it was anticipated to remain off-line until early September. Furthermore, a second producer has scheduled a maintenance program starting the second week of October, and demand from South America remained fairly robust. All of these factors were expected to result in a snug supply and demand balance through the end of the year.
Downstream, lubricant manufacturers continued to deal with additive shortages and high raw materials and production costs. An additive producer remained on 50 percent allocation following a weather-related shutdown, leading to lower operating rates at some manufacturing plants and lower base oil demand.
Aside from the steady climb of base oil prices for most of the first half of the year, additive prices have also gone up. 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. A third additive manufacturer has communicated price markups of up to 10%, effective Sept. 23.
Lubricant manufacturers implemented price increases in June, July and early August, and a number of suppliers intended to adjust values in September as well. One supplier will be increasing prices by up to 15% on Sept. 1 and a second manufacturer plans to raise prices on Sept. 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 tumbled on Tuesday on concerns about a global recession due to inflation and other downbeat economic factors, while Iraqi crude exports continued undeterred despite political turmoil in the country.
On Aug. 30, West Texas Intermediate October futures settled at $91.64/barrel, compared to $93.74/bbl for September futures on Aug. 23.
Brent futures for October delivery settled on the CME at $99.31/barrel on August 30, from $100.22/bbl on Aug. 23.
Louisiana Light Sweet crude wholesale spot prices were hovering at $99.90/barrel on Aug. 29, compared to $96.02/barrel on Aug. 22, 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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