There had been some talk about the possibility that posted prices would be lowered in June, and indeed, the first producer out the gate seemed to be SK, with its decrease becoming effective on June 1. The company will be decreasing the price of its Group II+ 70N base oil by 5 cents per gallon, its API Group III 4 centiStoke by 10 cents/gal and its 6 cSt and 8 cSt cuts by 15 cents/gal.

At the time of writing, no other producers had communicated posted price revisions, with most suppliers focusing on meeting contractual orders and trying to place additional volumes through spot shipments offered at competitive levels. Spot prices of API Group I and Group II light and mid-viscosity grades have moved down by a few cents week-on-week on more ample supplies of these cuts. Within the Group I segment, bright stock prices were managing to maintain a steady course on healthy demand and tightening supply, as substitution of this cut remains difficult.

Buying interest from export destinations such as Brazil was steady, drawing Group I and Group II grades away from the U.S. market as cargoes were offered at enticing values compared to local prices. Furthermore, supply disruptions from a domestic producer forced buyers to look for alternative sources of product.

Demand for Group I and Group II base oils from Mexico remained relatively sluggish, with buyers pressuring sellers to lower prices on expectations that the U.S. market will turn long once all plants are back on stream. Group I has also been shipped from the U.S. to Nigeria, and Group II cargoes to India, Argentina, Brazil, the Middle East and Europe. A 4,000-metric ton parcel was discussed for shipment from the U.S. Gulf to Ashdod, Israel, between June 10-15. About 7,000 tons were also quoted for prompt shipment from Port Arthur, Texas, to Gebze, Turkey. A 3,000-ton parcel – possibly of naphthenic oils – was expected to be lifted in Lake Charles, Louisiana, for Antwerp, Belgium, in first half June. Details emerged of approximately 35,000 tons having been shipped from Richmond, California, to Europe in early May, and about 4,000 tons to 5,000 tons shipped from Port Arthur to Santos, Brazil, in April.

The Group III segment displayed largely balanced conditions, with higher demand in Europe attracting some cargoes away from the U.S. and a turnaround in South Korea limiting the amounts of product the supplier was able to offer in the U.S. as well. Domestic production of Group III grades has increased at a couple of plants that also produce Group II base oils given more interesting margins, but volumes were limited by the lower feedstock yield. This means that output of Group II base stocks may be reduced, which could be welcome news in a market that was leaning towards oversupply.

Finished lubricant inventories were still deemed quite substantial, prompting blenders to be more conservative in terms of how much base oil to acquire, with the lower spot numbers attracting limited business. Consumers also hoped that base oil pricing would weaken on the back of muted demand, and they delayed orders for as long as possible. Base oil suppliers acknowledged that “demand was down across the board.”

Refiners were running their refineries at top rates given robust gasoline demand and they were also allotting more feedstocks to base oil output over diesel because of more attractive margins. However, if base oil supplies are not absorbed through domestic or export sales, refiners may have to adjust operating rates, particularly as a seasonal slowdown typically takes place in the second half of the year.

At the same time, scheduled turnarounds at base oil plants were expected to tighten domestic supply in the coming weeks. Chevron was heard to have planned a maintenance program and catalyst change at its API Group II plant in Pascagoula, Mississippi, starting this week for about twenty-one days. The producer was expected to meet contractual obligations but may limit spot offers during and after the turnaround.

Calumet has scheduled a routine turnaround at its Group I and Group II plant in Shreveport, Louisiana, in the second half of July and was expected to start building inventories to maintain supply during the outage.

The Excel Paralubes plant in Louisiana – which was recently restarted after an extended maintenance program – was heard to be running at top rates, allowing for additional Group II barrels to enter the supply system.

On the naphthenic front, prices were stable, supported by balanced-to-tight fundamentals and strong demand for export transactions in Europe and Asia. The light grades were characterized as tighter than their heavier counterparts. While crude oil prices have softened compared to earlier in the year, the healthy supply and demand conditions seemed to counteract the downward pressure exerted by feedstock values.

Downstream, lubricant demand was less vigorous than anticipated and finished products manufacturers were in possession of healthy inventories, inhibiting purchases of larger amounts of raw materials. Competition between major and independent manufacturers has increased, with some lubricant suppliers granting discounts to protect market share. Additive supplies were plentiful – as opposed to the shortage observed a year ago – but prices have not been widely adjusted down and blenders were careful about how much product to acquire.

Upstream, crude oil futures plunged by over 4% on Tuesday as an initial agreement to avoid a U.S. debt default was called into question by some Republican congressmen, and this almost coincided with an upcoming OPEC+ meeting where members will discuss whether they will increase their output cuts amid a recent slump in prices.

The West Texas Intermediate (WTI) benchmark has fallen significantly from its 2022 spot price average of $95 per barrel, and fears about a recession were keeping the benchmark range-bound at $65-$75, according to the U.S. Energy Information Administration (EIA) and various media reports.

On May 30, WTI July futures settled on the CME at $69.46/barrel, compared to $72.91/bbl on May 23.

Brent futures for July delivery settled on the CME at $73.54/barrel on May 30, from $76.84/bbl on May 23.

Louisiana Light Sweet crude wholesale spot prices were hovering at $74.40/barrel on May 26, from $73.76/bbl on May 22, according to the Energy Information Administration. (There was no trading on May 29 due to the Memorial Day holiday).

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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