Chevron informed its customers that the company was decreasing the price of its Group II 100R by 20 cents/gal, its 220R by 35 cents/gal and its 600R by 30 cents/gal, with an effective date of June 6 “to reflect current market conditions,” according to the announcement.

Last week, SK decreased the price of its Group II+ 70N base oil by 5 cents per gallon, its Group III 4 centiStoke by 10 cents/gal and its 6 cSt and 8 cSt cuts by 15 cents/gal. The decreases went into effect on June 1.

Base oil suppliers continued to face weaker demand conditions than expected during the early summer. Historically, base oil consumption started to take off in February or March, ahead of the busy spring production cycle, and remained healthy throughout the summer months, when the driving season peaks in the United States. However, this year, demand remained unusually lackluster, and inventories were substantial, both for base oils and finished lubricants suppliers. Market participants had hoped that heightened summer travel following three years of subdued conditions due to the coronavirus pandemic would translate into increased lubricant demand.

Base oil demand had also been expected to be supported by the need to build inventories ahead of the hurricane season – which runs from June 1 until Nov. 30 in the Atlantic Basin – to avoid shortages in case of production disruptions caused by severe weather. This year, forecasters had predicted a “more normal” season and there has been muted interest to keep additional inventories. However, the new director at the National Hurricane Center warned that “uncertainty” was the key word and that there was nothing normal when it comes to hurricanes. The first named storm of the season already formed on Friday in the Gulf of Mexico.

An interesting fact that base oil rerefiners mentioned was that they had seen a significant change in used oil collection rates. “Usually, collection rates grow gradually starting in mid-March and peak in late June. This year, the rates stayed flat (at winter levels) until early or mid-May and then they took an almost abrupt 15-20% increase,” a source explained. Rerefiners were heard to be struggling to handle this sudden increase in used oil collection, which requires not only increased operating rates, but also additional transportation and logistical resources. It remained to be seen whether the heightened activity reflected an increase in oil change rates and would eventually result in an increase in finished lubricant demand over the next four to eight weeks. It could also mean that oil changes have been taking place, but suppliers have been using up existing inventories instead of securing fresh shipments.

Both the Group I and Group II segments were balanced-to-long, depending on the cuts, with the light and mid-viscosity grades slightly tighter than their heavier counterparts. Suppliers continued to work on export transactions to achieve a more balanced supply and demand situation at home. A Group I producer was heard to have suspended spot offers of Group I cargoes due to unplanned maintenance at its base oils facility and a need to use its output for internal lubricant production.

Several transactions were recently concluded which entailed shipping U.S. products to destinations in Europe, South America, India and Africa. There were signs that demand from Brazil has started to rise given production issues at local facilities. About 3,000 tons were quoted for lifting in New Orleans, Louisiana, to Santos, Brazil, in the second half of June. A 10,000-metric ton cargo was discussed for shipment from the U.S. Gulf to Nigeria between June 15 and June 30. An 18,000-ton lot was mentioned for shipment from the U.S. Gulf to West Coast India in the first half of June.

Despite sluggish demand in most segments, export business and planned turnarounds at base oil plants were expected to tighten domestic supply of Group II grades in the coming weeks. Chevron was heard to have started a maintenance program and catalyst change at its Group II plant in Pascagoula, Mississippi, the first week of June. The turnaround was anticipated to last 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. The producer was also planning to build inventories to meet requirements during the outage.

The Excel Paralubes plant in Louisiana – which was recently restarted after an extended maintenance program and catalyst change – was expected to be operated at top rates, leading to additional Group II barrels becoming available.

Despite the maintenance shutdowns, lower diesel margins continued to offer incentives for refiners to produce more base oils, which led to high operating rates at most base oil facilities amid healthy inventories.

The Group III segment was largely balanced, with some regions attracting cargoes away from the Americas and leading to reduced shipments from some regular suppliers. A turnaround at a European base oil plant and another one in South Korea were marginally affecting the volumes shipped to the United States. There were reports that two U.S. Group II producers with the ability to produce Group III grades have increased output of these cuts given better margins, meeting some of the domestic demand which is typically fulfilled by imports from South Korea, Canada and the Middle East. There have been signs of downward pressure on spot transactions, particularly as the 6 centiStoke and 8 cSt grades have started to lengthen, with spot indications edging down by a few cents per gallons.

On the naphthenic front, there were no price changes reported. While the current pricing structure received support from balanced-to-tight fundamentals and steady buying interest from Europe and Asia, price pressure has been building because of declining diesel values and base oil contracts based on  formulas that include diesel.

Supply of the light pale oil grades was more strained than that of the heavier grades, although demand for these grades from the tire and rubber industry has also started to pick up in recent weeks.

Upstream, crude oil futures fell by about 1% on Tuesday as concerns that subdued global economic growth could reduce energy demand outweighed Saudi Arabia’s intentions to cut crude output.

On June 6, WTI July futures settled on the CME at $71.74/barrel, compared to $69.46/bbl on May 30.

Brent futures for August delivery settled on the CME at $76.29/barrel on June 6, from $73.54/bbl for July futures on May 30.

Louisiana Light Sweet crude wholesale spot prices were hovering at $74.44/barrel on June 5, from $74.40/bbl on May 26, 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.

Archived base oil price reports can be found through this link: https://www.lubesngreases.com/category/base-stocks/other/base-oil-pricing-report/

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