U.S. Base Oil Price Report


The downward posting adjustment for API Group III base oils communicated by SK Enmove last week did not trigger additional posted price adjustments – perhaps because price pressure was mostly confined to Group III supplies, which have slightly lengthened. Plentiful availability had already prompted some Group III suppliers to grant temporary voluntary allowances or adjustments in previous weeks.

Additionally, softer crude oil and feedstock values, together with a need to remain competitive and protect market share amid growing domestic supplies were also thought to have driven the SK initiative.

SK reduced the posted price of its Group III base oils by 10 cents per gallon, effective March 1, but left the price of its Group II+ 70N grade intact.

Several regularly scheduled Group III cargoes were expected to move to the U.S. from Asia and the Middle East this month, and volumes have increased year on year given strong demand for automotive applications and a deficit of domestic Group III output. An additional 20,000 metric tons made up of three grades were heard in discussions for possible shipment from Europe to the U.S. Gulf around March 20.

Spot prices for Group I cuts and light-viscosity Group II grades were said to have inched down slightly as availability has increased. The supply overhang was attributed to slower demand than expected for this time of the year. “The U.S. market is about the same as two weeks ago, and hopefully that changes soon,” a market source noted. One of the surprising facts was that the automotive segment remained muted, and passenger car motor oil volumes have been below what most participants expected at this time of the year.

Group II base oil availability was more abundant than expected despite an ongoing turnaround at the Excel Paralubes Group II plant in Westlake, Louisiana, and an upcoming shutdown at another key unit in the second quarter. The producer was thought to be building inventories to cover requirements during the outage. A third producer had contemplated starting a turnaround in March, but the shutdown has been postponed.

It was not clear what was dampening buying appetite, but a number of base oil consumers were likely to have built inventories late last year and were using up existing stocks before venturing out in search of more barrels. Many blenders were also happy to run operations with volumes acquired under contract and were staying away from the spot market. There was also speculation that blenders were waiting for lubricant demand to pick up, while buyers were delaying purchases in hopes that finished product prices would decline, sources said.

Even export activity has been subdued given adequate base stock availability in countries such as Brazil, while a numbers of Northeast Asian cargoes were expected to meet requirements on the West Coast of South America.

This week, there was mention of a 3,000-metric ton cargo likely to be shipped from the U.S. Gulf to Ashdod, Israel, in early March. Approximately 10,000 tons to 20,000 tons were being discussed for shipment from the U.S. Gulf to Lagos and Onne, Nigeria, and/or Luanda, Angola, this month.

There have been inquiries to move Asian product to Mexico as well, and U.S. suppliers have been anxious to compete with imported product from other regions. Mexican demand in general remained lackluster due to existing stocks and economic uncertainties, but market participants said that buying interest was slowly coming back and some brokers were already preparing inventories for a strong uptick later this month or in early April.

U.S. paraffinic producers have not issued additional posted price decreases, following those implemented in January, despite lower-than-anticipated demand. A number of suppliers explained that lowering prices further would not necessarily ignite buying interest, as buyers were just waiting for lubricant demand to increase.

Lubricant demand hovered below levels expected for March, ahead of the typical campaigns to build inventories for the summer driving season. Some lubricant producers have granted price decreases, hoping to attract business, while others expected consumption to pick up in the coming weeks and have not adjusted pricing.

Even additive prices have come under downward pressure, despite earlier efforts by suppliers to hold prices steady. The tepid activity levels in the different lubricant segments have also resulted in reduced demand for additives, and inventories were growing, which has prompted some suppliers to grant discounts in the realm of 2 to 4 percent into select accounts. Gone seemed to be the days when the market was plagued by additive shortages, as production levels have improved, and most additives were said to be available.

Meanwhile, on the naphthenic side, demand was heard to be steadily growing in line with expectations for heightened activity in the spring and revived buying interest from Latin America, Europe and Asia.

Pale oil supply and demand levels were described as largely balanced in the U.S. as most plants were running well, following the restart of San Joaquin Refining’s unit in California, which completed a turnaround in mid-February. The heavy grades were said to be slightly longer than the light cuts, but this could change as the warm summer months approached and demand from the tire and rubber segments was likely to pick up. Demand from the industrial segment was also anticipated to show additional strength.

Upstream, crude oil futures edged up on Monday after falling in previous sessions as top oil executives gathering at a conference in Houston, Texas, underscored the possibility of supply tightness and higher demand from China. Data from the American Petroleum Institute data showed that U.S. crude oil inventories had decreased this week. OPEC+ has also suggested that it will not raise production until next year. Saudi Arabia raised April prices for crude shipments to Asia and Europe for a second month in a row, reflecting expectations that oil demand would be increasing in those regions. Prices for U.S. customers were left unchanged.

However, oil futures plummeted on Tuesday as investors expected steeper U.S. rate hikes following comments by the U.S. Federal Reserve Chair Jerome Powell.

“While oil futures have weakened slightly this year, many energy traders and executives see them climbing – perhaps to $100 a barrel – as China’s economy recovers after the lifting of coronavirus lockdowns and inflation in other major economies decelerates,” a Bloomberg article explained on March 6.

According to Bloomberg, Brent crude has dipped this year to around $85 per barrel, from $115/bbl in mid-2022.

On March 7, Brent futures for May delivery settled on the CME at $83.29/barrel on March 7, from $83.89/bbl for April futures on Feb. 28.

West Texas Intermediate (WTI) April futures settled on the CME at $77.58/barrel, compared to $77.05/bbl on Feb. 28.

Louisiana Light Sweet crude wholesale spot prices were hovering at $83.19/barrel on March 6, from $78.57/bbl on Feb. 27, 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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