Despite base oil suppliers’ efforts to encourage fresh orders, consumption levels were still lagging those registered in the spring of years past, although some encouraging signs of increased buying appetite have started to emerge. A number of participants blamed the generally lackluster consumption on economic uncertainties and the rising cost of living, which dampened demand for finished products. Others conjectured that blenders had been operating with high inventories since the end of the year and were still trying to draw down existing stocks.
What was particularly perplexing was that base oil demand had been stronger in the spring of the two previous years, despite many pandemic-related restrictions on travel and an increase in remote work at that time. By comparison, more employees are currently commuting to work and there has been an increment in business travel, but demand from the automotive segment remained sluggish, although suppliers said that requirements have started to pick up.
April base oil posted price decreases have been implemented, but they did not seem to have generated many additional orders, according to sources. Base oil suppliers lowered API Group I postings by 20, 25, 30 and 35 cents/gal; Group II prices by 25, 30, 35, 40 and 45 cents/gal; Group II+ values by 20, 25, 30 and 40 cents/gal and Group III postings by 15, 20, 25, 30 and 40 cents per gallon, depending on the grade and the supplier, between March 28 and April 25. The posted price decreases had been driven by muted demand, mounting inventories and lower crude oil and feedstock prices, and came on the back of temporary value allowances or adjustments during the previous weeks. While the posted price decreases were expected to bring the TVAs to a stop, sources said that some special discounts beyond the announced decreases were still being granted with the intention of increasing uptake from contract customers.
Crude oil values remained volatile on recession fears and geopolitical tensions, with West Texas Intermediate futures having fallen to below $70 per barrel during the first week of May from levels near $80/bbl in early April. This week, WTI futures were hovering in the low $70s/bbl.
Oil futures were on the rise again as U.S. recession fears eased and a healthy U.S. jobs report helped numbers rise by about 4% on Friday, May 5. On Tuesday, futures recovered from a 2% drop earlier in the session, as the U.S. government expects to refill the nation’s emergency oil reserve and an expected rise in seasonal demand helped boost sentiment.
On May 9, West Texas Intermediate (WTI) June futures settled on the CME at $73.71/barrel, compared to $71.66/bbl on May 2.
Brent futures for July delivery settled on the CME at $77.44/barrel on May 9, from $75.32/bbl on May 2.
Louisiana Light Sweet crude wholesale spot prices were hovering at $75.38/barrel on May 8, from $77.55/bbl on May 1, according to the Energy Information Administration.
Supply in most base oil segments was deemed balanced against requirements, with some pockets showing a slight tightening on account of reduced operating rates, upcoming turnarounds, or general market conditions.
The Group I segment was balanced-to-tight as a key producer has been utilizing more of its base oils output internally, limiting its ability to offer additional cargoes for export. This has also contributed to reduced availability of parcels going to Mexico over the last three weeks. There was talk about Group II grades being offered into Mexico to meet part of the budding demand.
Buying interest for Group I grades from Brazil continued to be noted as a local producer’s output was irregular and domestic prices have inched up. Aside from U.S. cargoes, there has been interest to move base oils from other regions to fill the supply gap.
Manufacturing rates have inched up in the U.S. in April, which has led to higher demand for industrial lubricants and metalworking fluids. Group I heavy-viscosity base oil requirements from the industrial segment were deemed steady and helped suppliers manage inventories. Nevertheless, orders have been more moderate than expected and base oil sales teams have adjusted forecasts down accordingly, sources commented.
Domestic demand for Group II base oils seemed to be improving, particularly from the automotive segment, which had so far shown disappointing activity. Lubricant manufacturers may have used up inventories and have started to replenish stocks to cover requirements during the busy summer driving season, but levels were still not as robust as anticipated for this time of the year.
There has been increased buying interest for U.S. Group II base oils from other regions as well, and a number of cargoes have been lined up to move to India, Europe and Latin America in recent weeks. This situation, together with a recent turnaround and an upcoming shutdown at Group II facilities, were helping producers manage inventories.
Chevron was heard to be preparing to take its Group II plant in Pascagoula, Mississippi, off-line in June for maintenance and a catalyst change. The unit was expected to be idled for about three weeks.
The Chevron turnaround comes on the heels of a turnaround at another key Group II facility, the Excel Paralubes plant in Lake Charles, Louisiana, which completed an extended maintenance program in April, including a catalyst change. While the supplier was heard to be rebuilding inventories and meeting contract commitments, it has not been able to offer much in terms of spot availability, although production rates have been ramped up and additional volumes may become available in the coming weeks, according to sources.
Supply was largely balanced against demand in the Group III segment, with regular cargoes from Asia and the Middle East making their way to the Americas and domestic production helping meet some supply gaps. An upcoming turnaround at a South Korean facility was expected to tighten availability, but supplies from the Middle East were anticipated to continue flowing unencumbered. The 4 centiStoke grade was drawing more attention than its 6 cSt and 8 cSt counterparts, but there were no shortages noted.
On the naphthenic base oils front, prices showed little fluctuation and received added support from climbing crude oil prices this week. Healthy buying appetite from Europe and Asia attracted several U.S. cargoes and helped keep the domestic market in a balanced position, but weaker diesel prices were placing pressure on the light grades. Nevertheless, suppliers said that pale oil prices were generally stable on supportive market fundamentals.
Downstream, lubricant manufacturers were heard to be granting discounts to protect or gain market share, and this has led to increased buying appetite for finished products from a few segments. The heightened purchasing activity was partly attributed to the reduced prices, but also to a need to replenish stocks as consumption from a number of applications was starting to pick up after an extended period of lackluster activity. Blenders were also hoping to obtain additive price decreases, but there has not been wide implementation of price reductions as additive suppliers seemed to be biding their time.
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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