Crude oil futures had jumped following news of the Hamas’ attack on Israel last week but fell by more than $1 per barrel early this week, on expectations that the U.S. and Venezuela could soon strike a deal easing sanctions on Venezuelan crude exports, allowing for more oil to enter the supply system. Observers also seemed more optimistic that the Israel-Hamas conflict would not spread to other countries in the Middle East, possibly affecting oil production.

On Oct. 17, West Texas Intermediate (WTI) November futures settled on the CME at $86.66/barrel, compared to $85.97/bbl on Oct. 10.

Brent futures for December delivery settled on the CME at $89.90/barrel on Oct. 17, from $87.65/bbl for November futures on Oct. 10.

Louisiana Light Sweet crude wholesale spot prices were hovering at $88.75/barrel on Oct. 16, from $85.13/bbl on Oct. 6, according to the Energy Information Administration. (There was no settlement posted on Oct. 9 due to the Columbus Day/Indigenous People’s Day holiday in the U.S.).

Base oil market participants were concerned that the higher crude values would prompt producers to adjust base oil prices. Paraffinic posted prices and naphthenic base oil prices were raised in September on account of steep crude oil and feedstock values, and further spikes in crude futures could place additional pressure on base oil pricing.

Another element that market players have been watching was diesel supply and pricing. Diesel has been tight on a global scale since Russian exports have been temporarily banned and prices have climbed. Diesel competes with base oils at the refinery level as producers sometimes favor diesel output over base oils, depending on conditions. However, China could come to the rescue once again, as it did at the end of last year, with the country expected to offer increased distillate exports in the last months of 2023, OilPrice.com reported. Base oil margins have also improved, reducing refiners’ incentive to produce more distillates versus base stocks. The higher base oil output would coincide with a period of sluggish demand during the last quarter of the year, potentially exacerbating oversupply conditions.

Producers were concerned that market uncertainties and volatile crude prices would keep blenders from securing base stocks, despite the fact that buyer inventories were generally believed to be rather lean. Participants typically pad inventories ahead of the start of the hurricane season along the U.S. Gulf Coast in early June and then start to release them in September and October. This year, however, it appears that most players had been more conservative in terms of how much product they had kept in storage.

In fact, API Group I and Group II base oil supply was deemed on the tight side, while availability of Group III oils was ample. This was thought to be the result of increased Group III domestic production and plentiful availability of imported cargoes. While the usual players who import Group III base oils to the U.S. have adjusted volumes according to demand levels, a supplier with facilities in the Middle East who had not traditionally offered cargoes into the merchant market was heard to have been more active in recent months. A key domestic producer was also understood to be producing more Group III grades of late.

Participants were also worried that the extended strike of the United Auto Workers union on the three largest automakers in the U.S. would impact demand for Group III base oils negatively, as high-performance Group III oils are used in automotive applications.

The Group I segment remained snug because of steady demand and reduced availability from Group I producer HollyFrontier, as the producer’s plant was undergoing a 45-day turnaround that was expected to be completed in early November. The company had limited its spot sales ahead of the turnaround to build inventories and maintain supply to contract customers during the shutdown.

The Group II segment was also deemed balanced-to-tight, depending on the grade. The light-viscosity cuts were less available as both domestic and export demand had put a significant dent on availability. The heavier grades were more easily obtained.

Buying interest for U.S. base oils from Brazil was healthy, and even though there had been concerns that Asian base oils would be taking the place of U.S. cargoes in meeting some of this demand, a lack of vessels to transport material from Asia was hampering the conclusion of some transactions.

A Brazilian Group I plant operated by state-owned multinational Petroleo Brasileiro experienced unplanned production issues in September and another of the company’s large production facilities was expected to have started an extended turnaround earlier this month. Incidentally, according to various media reports, Petrobras achieved high utilization rates of its refineries in the third quarter, allowing the company to attain the best performance of its refining business since 2014. At the end of September, Petrobras’ nine refineries were expected to have run at an overall utilization rate of 97%.

U.S shipments of light-vis grades have also been well-received in Mexico to meet requirements from the diesel extender segment. Additional shipments were expected to be concluded in the second half of this month, provided more supplies were available at attractive prices.

On the naphthenic base oils side, supply and demand were also generally balanced-to-tight, particularly the lighter grades, supporting the prevalent price structure. Producers were watching crude oil prices carefully as unexpected fluctuations could have an impact on refinery operations and base oil values.

Base oil suppliers were concerned that the uncertainties related to crude oil values would dampen blenders’ buying interest. At the same time, blenders were preparing to implement price increases on finished products in late October to early November to reflect the August and September base oil posted price increases, along with steeper packaging and transportation costs. Some participants worried that the initiatives would discourage purchasing. On the other hand, the looming lubricant price increases might trigger a brief uptick in finished product orders ahead of the implementation dates.

Over the last couple of weeks, several independent lubricant manufacturers have communicated price increases of up to 10-18% for lubricants and greases, and up to 9% for brake fluids, with effective dates peppered between Oct. 16 and Oct. 30.

This week, Safety-Kleen increased pricing on blended lubricants by up to 15%, effective Oct. 16.

There were also reports that major suppliers intended to increase lubricants by up to 10% to 15% in early November.

Additive suppliers have started to communicate price markups as well. Afton Chemical informed its customers that the company would be increasing its lubricant additive prices by up to 8%, with an effective date of Nov. 15. The increase was due to higher raw material costs and inflationary pressures, the company explained.

The additive increase announcements stoked concerns that they would dampen base oil demand as blenders would be more cautious in terms of how much finished lubricant to produce and avoid holding too much high-priced surplus inventory.

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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