U.S. Base Oil Price Report


Base oil market participants were keeping a close eye on crude oil futures, as values jumped early this week after deadly attacks on several Israeli towns by the Palestinian militant group Hamas over the weekend, fanning tensions in the Middle East, triggering market volatility and bringing back a geopolitical risk premium on oil prices.

Some analysts believed that the escalating conflict between Israel and Hamas may have limited impact on crude oil, but others speculated that if it turns out Iran was behind Hamas’ attack, there was a good chance that the United States would start to enforce sanctions on Iranian oil exports more strictly. This would reduce the global oil supply and drive prices up. In recent months, Iran’s oil exports had increased due to a feeble enforcement of the sanctions.

Iran denied involvement in the assault at a United Nations Security Council meeting in New York on Sunday, according to Reuters, although Iranian President Ebrahim Raisi has reportedly expressed support for the attack.

Crude oil futures had risen steadily from July to early September but fell to three-week lows last week on a strong dollar and pessimistic growth prospects for the world’s biggest economies. Futures then surged by more than $3.50 per barrel on Monday after news of the attacks on Israel. However, they ended lower on Tuesday as concerns eased about potential supply disruptions in the Middle East. There has also been some progress in U.S.-Venezuela talks that could result in more oil coming to the market despite Saudi cuts.

On Oct. 10, West Texas Intermediate (WTI) November futures settled on the CME at $85.97/barrel, compared to $89.23/bbl on Oct. 3.

Brent futures for December delivery settled on the CME at $87.65/barrel on Oct. 10, from $90.92/bbl for November futures on Oct. 3.

Louisiana Light Sweet crude wholesale spot prices were hovering at $85.13/barrel on Oct. 6, from $90.66/bbl on Oct. 2, according to the Energy Information Administration. (There was no settlement posted on Oct. 9 due to the Columbus Day/Indigenous People’s Day holiday).

Steep crude oil and feedstock prices were the main factors that triggered base oil posted price increases in September, along with the need to improve margins against competing diesel values. The initiatives implemented in the second half of September raised postings by 15, 20, 25 and 30 cents per gallon, depending on the grade and the producer, with the exception of bright stock, which was left unchanged. SK Enmove’s postings were not adjusted at that time either.

Naphthenic producers also increased prices by 25 cents/gal and 30 cents/gal, depending on the grade and the location, in September on the back of firm crude oil and feedstock prices and higher diesel values. Market conditions were described as generally balanced, with the light pale oils deemed tighter on account of robust demand.

Some refiners have been prioritizing the production of distillates over that of base oils as margins have been more attractive and diesel supply has tightened significantly. Distillate inventories in the United States have been hovering at levels well below what is typical for this time of year, with an Energy Information Administration (EIA) Petroleum Status report showing that distillate inventories in the U.S. had fallen by 1.269 million barrels in the week ending September 29, compared with market forecasts of a 0.333 million bbl drop.

A 45-day turnaround at HollyFrontier’s API Group I plant in Tulsa, Oklahoma, which started last month and was expected to be completed in early November, has also tightened Group I base oil supplies. The producer had limited its spot sales ahead of the turnaround to build inventories and meet contractual obligations during the outage.

The Group II segment was described as balanced-to-tight, depending on the grade. The light-viscosity cuts appeared to be less available as export demand has been healthy. Buying interest for the light-vis grades was especially strong from the diesel extender segment in Mexico and offer prices have been raised as a result. Group I and Group II barrels have made their way from the U.S. to Europe, Brazil, Mexico and other destinations in Latin America over the past few weeks.

A large production facility in Brazil was expected to start an extended turnaround this month, prompting buyers to look for product from other sources. A 6,000-metric ton cargo was shipped from the U.S. Gulf to Rio de Janeiro in early September, and a 3,700-ton lot was discussed for shipment from New York to Santos in late September to early Octotber. It was also heard that a large cargo had been shipped from Malacca, Malaysia, to Brazil in mid-August.

Domestic base oil demand was deemed steady, but not particularly robust, except in a few segments, and was expected to soften over the next several weeks as participants prefer to end the year with lean inventories, coinciding with producers’ destocking efforts.

Lubricant production rates also tend to decrease in the fourth quarter, affecting base oil demand, and this year, many uncertainties appeared to be impacting activity in the lubricants sector. Buyers were heard to be in possession of ample inventories and were wary about acquiring additional volumes as lubricant consumption has been lackluster throughout the year and was only anticipated to pick up marginally in the fall.

Lubricant manufacturers were planning to increase prices in late October or early November to reflect not only the September base oil price increases, but also the mounting cost of additives, packaging and transportation.

Several independent manufacturers announced increases of up to 10%-18% for lubricants and greases, and up to 9% for brake fluids, with implementation dates spread throughout the second half of October.

There were also reports that ExxonMobil intended to increase its lubricants by up to 10% on Nov. 1, and SOPUS (a subsidiary of Shell USA) by 15% on the same date.

In related industry news, United Auto Workers members at Volvo Group-owned Mack Trucks facilities in three states went on strike on Oct. 9 after rejecting a proposed five-year contract. The tentative deal was downvoted by 73% of 4,000 workers in Florida, Maryland, and Pennsylvania, the newsletter 1440.com reported.

Mack Trucks workers are not part of the original UAW strike which began Sept. 15 against the Big Three automakers General Motors, Ford, and Stellantis (formerly Fiat Chrysler). Observers say the Mack deal may have fallen apart due to higher expectations from bargaining with the Big Three; Ford has so far offered a 23% pay raise, while GM and Stellantis are at 20%. More than 30,000 workers are now striking across 22 states. Base oil and lubricant market participants said the strike may start showing its impact on lubricants demand, particularly those used in factory-fill and oil change stations if it is extended further.

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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