Recent posted price decrease announcements appeared to have partially achieved the expected outcome, as suppliers noted that a limited number of additional orders had been placed since the decreases went into effect. Nevertheless, sellers also admitted that demand was still lagging compared to the same period in previous years, and that there had not been a significant improvement yet. Observers attributed this condition to economic uncertainties – which were dampening finished products sales – along with steep lubricant prices.
While it was still difficult to pinpoint exactly why base oil and lubricants consumption has been lackluster at a time when demand typically takes off, sources said that many consumers have adopted a cautious attitude and have postponed or cancelled trips on account of inflation and the increased cost of living. Consumers have had to postpone family outings and leisure travel because of the higher cost of fuel, meals, accommodations and airline fares, sources explained. “While [inflation and gas prices] have begun to come back down and unemployment is near historic lows, many Americans remain unsettled by economic anxiety,” The New York Times reported.
Additionally, even though driving has rebounded since the early days of the COVID pandemic – which had brought an unprecedented decline in driving in the U.S. – vehicle miles are still down compared to pre-pandemic years. According to the U.S. Department of Transportation, Office of Highway Policy Information, travel during January 2023 on all roads and streets in the nation changed by +5.6% (an increase of 13.2 billion vehicle miles) compared to the same month in the previous year, resulting in estimated travel for the month at 247.3 billion vehicle miles. However, this was still down from 260.8 billion vehicle miles in January 2020.
Base oil demand usually starts to improve in late February or early March, when lubricant and other finished products manufacturers increase operating rates to boost inventory levels and meet demand during the vibrant summer driving and oil change season. However, this year, the situation appeared to be different, with demand from the automotive segment particularly lackluster. “Automotive seems to be leading the way in the sluggish category,” a source commented. Suppliers also thought that base oil demand would likely not improve until end-users saw a general decrease in lubricant prices.
Base oil producers hoped to invigorate sales by lowering base stock values. A vast majority of producers announced posted base oil price decreases between 15 cents per gallon and 40 cents/gal, with the adjustments going into effect between March 28 and April 25.
Before the decreases were communicated, a number of paraffinic producers had granted temporary value allowances or adjustments in the realm of 30 cents/gal to 85 cents/gal, depending on the account, to encourage buyers to take additional volumes. These incentives would be removed once the posted price decreases go into effect.
There were expectations that demand would also improve in the coming weeks as participants returned from the Independent Lubricant Manufacturers Association meeting held in Arizona last week, where many discussions about the current market conditions were heard to have taken place. While buyers were anticipated to start restocking, they were also likely to manage inventories carefully and purchase smaller volumes, as there were fewer concerns about supply chain disruptions. Predictions of a milder hurricane season in the Atlantic basin also assuaged fears of production disruptions and lowered the risk of keeping low inventories.
Supply and demand were fairly balanced in the API Group I segment, given that a refiner had completed a turnaround in March and refinery run rates had been adjusted when diesel prices had spiked earlier in the year, leading to reduced base oil output. Interest in United States Group I barrels for export also helped maintain a balanced scenario. Suppliers have fielded inquiries from Brazil and Mexico, although lubricant sales in those countries have also been mixed, with demand particularly weak for diesel blending in Mexico. In other Latin American business, a 4,000-ton cargo, possibly of Group II or Group III base oils, was discussed for shipment from South Korea to Argentina at the end of May or early June.
The domestic Group II segment has seen some lengthening in recent weeks, which led to downward spot price adjustment of about 5 cents/gal for the heavy-viscosity grade as suppliers sought to conclude deals. The light and mid-viscosity grades remained fairly plentiful as well. A large cargo for May lifting was recently finalized to India, and additional discussions were ongoing, according to sources. The cargo involved 16,000 metric tons of three grades, expected to be lifted in Houston, Texas, to Mumbai the first week of May.
Group II supply levels have started to improve as the Excel Paralubes Group II plant in Lake Charles, Louisiana, plant, completed maintenance and a catalyst change on April 10, following a two-month turnaround that was extended by two weeks due to technical difficulties during the restart process. However, the producer was heard to be building inventories and was expected to be unable to offer spot supplies for a few weeks. These details could not be confirmed with the producer directly.
A Group II+ and Group III rerefiner also had a brief one-week maintenance program in mid-March.
Chevron was preparing to take its Group II plant in Pascagoula, Mississippi, offline for maintenance for about three weeks to a month at the end of the second quarter, and the producer was heard to be building inventories to meet requirements during the turnaround. The shutdown was heard to have been postponed from an original date earlier in the quarter.
Group III base oils availability was deemed fairly balanced against demand, and upcoming turnarounds in source countries such as South Korea might lead to tightening supply in the second quarter. The 4 centiStoke grade continued to outpace its counterparts – the 6 cSt and 8 cSt – in terms of buying interest, as demand from the automotive segments remained steady and was expected to continue growing. However, higher domestic production of Group III 4 cSt base stocks helped meet the uptick in demand.
On the naphthenic base oils front, prices were generally holding at unchanged levels, supported by firm crude oil and feedstock prices and balanced-to-snug supply and demand conditions. Requirements from the transformer oil segment were heard to be robust. Healthy buying appetite from Europe and Asia along with steeper prices in those regions allowed for additional export business and contributed to the tightening of some of the pale oil grades in the U.S.
Finished lubricant manufacturers welcomed the base oil posted price decreases recently implemented, since end-users had been hoping for lower lubricant prices given high inventories and sluggish demand. However, blenders also lamented the fact that additive prices were still hovering at lofty levels, with additive decreases being granted only to a limited number of customers, according to sources. The additive supply situation has vastly improved compared to mid-2022, when many products were in short supply and lubricant manufacturers had been forced to dial production rates down.
Upstream, crude oil futures initially edged up on Monday, with investors appearing optimistic that holiday travel in China would boost fuel demand in the world’s largest oil importer, but numbers slumped by 2% on Tuesday on growing concerns about an economic slowdown and a stronger dollar.
On April 25, West Texas Intermediate (WTI) June futures settled on the CME at $77.07/barrel, compared to $80.86/bbl for May futures on April 18.
Brent futures for June delivery settled on the CME at $80.77/barrel on April 25, from $84.77/bbl on April 18.
Louisiana Light Sweet crude wholesale spot prices were hovering at $75.09/barrel on April 24, from $83.08/bbl on April 17, 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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