San Joaquin will be lifting naphthenic base oil prices by 30 cents per gallon, effective Sept. 15, and will also be adjusting up export prices on that date.

Other producers were heard to be considering price adjustments too, given the recent rise in crude oil and feedstock prices and steady domestic base oil demand. The light grades enjoyed more of the spotlight as consumption was healthy and supplies were very strained compared to the heavier viscosities. A producer reported being sold out of the pale 60 and transformer oil grades.

Exports to South and Central America and Asia were also drawing supplies away from the domestic system, contributing to the snug conditions and supporting prices. San Joaquin will also be increasing its export prices, explaining that California Air Resources Board diesel values were hovering near $4 per gallon, and this was exerting pressure on export business, as base oil producers need a reasonable premium over diesel to justify sales.

Base oil producers had been keeping a close eye on crude oil prices, as numbers have been on an upward trek over the last two months. Crude oil futures jumped on Tuesday after OPEC+ and the Energy Information Administration predicted that robust global demand and ongoing production curbs would keep prices elevated the rest of the year. The Brent benchmark breached $90 per barrel last week for the first time in 10 months after Saudi Arabia and Russia announced they would extend voluntary supply cuts until the end of 2023. Investors were also anticipating the release of macroeconomic data that would indicate whether interest rates would rise further in the U.S. and Europe.

On Sept. 12, West Texas Intermediate (WTI) October futures settled on the CME at $88.84/barrel, compared to $86.69/bbl on Sep. 5.

Brent futures for November delivery settled on the CME at $92.06/barrel on Sept. 12, from $90.04/bbl on Sept. 5.

Louisiana Light Sweet crude wholesale spot prices were hovering at $89.40/barrel on Sept. 11, from $87.92/bbl on Sept. 1, according to the Energy Information Administration (There was no trading on Sept. 4 due to the Labor Day holiday).

On the paraffinic front, several refiners have trimmed base oil production as more feedstocks were being directed into the distillates stream due to improved margins and healthy demand for fuels. Somewhat insipid domestic demand for base oils also drove some of these decisions.

Recent and upcoming plant turnarounds have contributed to the tightening of API Group I and Group II grades as well, supporting current posted prices, while buoyant appetite for exports drove spot prices of Group I and Group II grades up by a few cents per gallon week on week. Rerefiners were heard to have raised their 100-viscosity grades too.

Sources reported that buying interest from Brazil had been steady, particularly as one domestic base oil facility in Brazil has been taken off-line for maintenance and another will undergo an extended turnaround in the fourth quarter. Uncertainties regarding the duration of the programs and whether domestic product would be obtainable in the coming months made buyers turn to the U.S. to secure shipments.

Demand for U.S. light-viscosity base oils from Mexico has also seen a moderate increase, with a number of buyers utilizing these cuts as diesel extenders. Activity in the different lubricant segments has picked up in Mexico on more optimistic prospects. Some buyers have also become concerned that supply in the U.S. might be tightening to a point where there will not be enough attractively-priced product to export in the last quarter, contrary to what has happened in years past.

The export movements, together with reduced production rates, have allowed refiners to maintain a balanced supply and demand situation, despite the expected slowdown in domestic base oils and lubricants consumption as the summer driving season has come to an end. An exception may be those buyers who have depleted inventories and need to purchase fresh cargoes in the coming weeks. These buyers were joined by consumers who placed orders to beat potential price hikes down the road, given rising crude oil and diesel values.

Planned production outages have also resulted in tighter supply conditions. Chevron and Calumet completed maintenance programs in the previous two months, while Motiva had a brief turnaround at its Group II and Group III plant in late August, which only affected Group II 600N production, but did not impact general supply of this grade.

HollyFrontier’s crude processing unit at its Tulsa, Oklahoma, refinery, has been shut down for a turnaround, and the base oils plant will be taken down shortly for a 45-day maintenance program, a source familiar with the company’s operations said this week. The producer had limited its spot offers in the weeks leading up to the turnaround in order to build inventories and had also been utilizing more of its base stocks for the company’s own lubricant production, which has contributed to an overall tightening of Group I grades.

A couple of rerefining units will also undergo scheduled maintenance over the next few weeks.

Meanwhile, availability of Group III grades, both domestic and imported, was plentiful, while demand from the automotive sector has been slightly lackluster. Supply from Asia might be more strained due to ongoing turnarounds and reduced operating rates at some refineries as producers adjust to current conditions, and this may impact volumes shipped to the U.S. in the coming months.

In downstream markets, the pricing situation of finished lubricants was reported as mixed. While some lubricant manufacturers were trying to pass the early August base oil posted price increases down the supply chain, other producers left their pricing unchanged, and some suppliers continued to offer decreases in order to protect market share. There were no reports of price changes in the additive segment, but values were receiving support from the higher base oil prices.

In other industry news, as mentioned above, about 146,000 U.S. auto workers are poised to go on strike this week if auto makers General Motors, Ford and Stellantis fail to meet their demands for pay raises and the restoration of concessions the workers made years ago when the companies were in financial trouble, PBS.com reported. “The president of the United Auto Workers union (UAW) has threatened to strike any of the three companies that has not reached an agreement by the time its contract with the union expires at 11:59 p.m. Eastern time on Thursday,” PBS reported.

According to the article, GM, Ford and Stellantis have continued to run their factories around the clock to build up supplies on dealer lots. At the end of August, the three automakers collectively had enough vehicles to last for 70 days. After that, they would run out of cars to sell, the PBS article noted.

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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