U.S. Base Oil Price Report


Market players remained vigilant of crude oil and feedstock prices, as these were the factors most likely to influence base oil pricing in coming weeks, although efforts by suppliers to reduce inventories ahead of year-end might play an important role too. Supply and demand have not shown dramatic changes, with consumption levels having been lackluster throughout most of the year and they could possibly become even more sluggish before December.

Crude oil futures were very volatile as they were swayed by economic and geopolitical developments, falling on Tuesday for the third straight session after the release of weak economic data from the European Union and Britain, fueling concerns about reduced oil demand. Traders also continued to keep an eye on the Israel-Hamas conflict amid diplomatic efforts. Reports showed a drop in United States oil and fuel inventories last week, but this did not seem to impact prices.

On Oct. 24, West Texas Intermediate (WTI) December futures settled on the CME at $83.74/barrel, compared to $86.66/bbl for November futures on Oct. 17.

Brent futures for December delivery settled on the CME at $88.07/barrel on Oct. 24, from $89.90/bbl on Oct. 17.

Louisiana Light Sweet crude wholesale spot prices were hovering at $87.09/barrel on Oct. 23, from $88.75/bbl on Oct. 16, according to the Energy Information Administration.

Base oil supply and demand were described as largely balanced in most segments, with the exception perhaps of the API Group III sector, where supplies appeared to be ample on steady production rates in Asia and the Middle East, where most of the Group III base oils imported to the United States originate. Increased domestic production of Group III base oils also contributed to the growing supply levels, while a supplier with facilities in the Middle East who had not traditionally sold base oils into the merchant market was heard to have offered cargoes to international players in recent months. A key domestic producer was also understood to have increased its Group III output. However, importers have adjusted import volumes to avoid oversupply and tax repercussions at the end of the year, and spot prices were reported as steady.

There were expectations that the Group I segment would remain balanced-to-tight because of stable demand and reduced availability from Group I producer HollyFrontier, as the producer’s plant was undergoing a 45-day turnaround. There have also been reports of competitively-priced bright stock imports becoming available over the last couple of weeks.

HollyFrontier’s crude unit has started up and the base oil units were likely to be restarted in the next few days as scheduled. The producer expected to be producing base stocks by Nov. 1, a source familiar with the company’s operations said. HollyFrontier had limited its spot sales ahead of and during the turnaround to build inventories and maintain supply to contract customers during the outage.

Domestic suppliers have been able to keep inventories in check thanks to steady requirements at home and healthy appetite for exports in Brazil and Mexico. Several cargoes have been concluded to Brazil, where a Group I plant operated by state-owned multinational Petroleo Brasileiro (Petrobras) experienced unplanned production issues in September and another of the company’s large production facilities was expected to have started a two-month turnaround earlier this month.

The Mexican government has announced new restrictions and the need to apply for an import license of refined products – including lubricant base oils and waxes – to stop illegal imports and smuggling. Gasoline and diesel will be exempt of this requirement. According to a press release posted on the Mexican government’s Secretary of Energy website (SENER), those companies that already have an import license can continue to use it but need to present additional documentation within 30 days of the implementation of the new rule (which goes into effect on Oct. 24). Companies that would like to apply for a new license will have to demonstrate that the imported products are needed in their production process and will be used for a legal purpose.

There were still many uncertainties and feedstock volatility affecting domestic demand of base oils in the U.S., sources commented, and suppliers were “not very optimistic” about the rest of the year, although at least one supplier said that October sales had been quite healthy. Should demand remain weak and supplies start to mount, refiners might trim base oil plant operating rates further to avoid a large product overhang. Refinery run rates had already been adjusted down throughout the year due to sluggish consumption and steep competing diesel prices.

On the naphthenic base oils side, business has been steady, particularly for the light-viscosity grades used in transformer oil applications, with buying interest from Asia, Europe and Latin America said to be robust, which has helped support current prices.

Naphthenic base oil supplies were also reduced because of an unexpected production outage at one plant and an upcoming turnaround at another unit.

Cross Oil’s plant in Smackover, Arkansas, experienced a brief unplanned shutdown last week, but was poised to be restarted last Friday, according to a source familiar with the company’s operations.

San Joaquin Refining was heard to have planned a 30-day turnaround at its base oils plant in Bakersfield, California, in November. The producer was expected to have built inventories to meet contractual obligations during the outage.

Calumet plans to have a scheduled turnaround at its naphthenic base oils unit in Princeton, Louisiana, in the first quarter of 2024 and was likely to start building inventories ahead of the shutdown as well.

Just like paraffinic suppliers, naphthenic base oil producers kept an eye on crude oil prices as ongoing volatility might affect refinery operations and base oil values.

Downstream, blenders were hoping to implement price increases on finished products in the second half of October to early November to reflect the August and September base oil posted price increases, along with heftier packaging and transportation costs. Some participants worried that the initiatives would dampen orders. Additive increase announcements were expected to place additional pressure on prices and affect purchase volumes.

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.

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 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. A second additive producer was heard to have announced an increase of up to 10%-12% for mid-November implementation. There were expectations that consumers would resist the increases.

The United Automobile Workers (UAW) union shut down production at General Motors’ largest U.S. factory on Tuesday, expanding the six-week strike on the three largest U.S. automakers (General Motors, Ford and Stellantis) that is taking a significant toll on profits. The union told 5,000 workers at G.M.’s plant in Arlington, Texas, to stop working on the same day that  the automaker announced a drop in its third-quarter profit and said U.A.W. work stoppages had cost it $800 million so far, The New York Times reported.

It was still unclear to what extent the strike was affecting the lubricants segment. Some participants said it was impacting factory-fill demand and others were of the opinion that if there was a shortage of car parts, drivers would not be able to get their cars fixed, which is when they typically also get their oil changed.

In other industry-related news, The New York Times reported that Chevron had agreed to buy a rival driller, Hess, for $53 billion. The all-stock deal would strengthen Chevron’s holdings in oil-rich Guyana and follows ExxonMobil’s $59.5 billion agreement to acquire Pioneer Natural Resources announced earlier this month. The merger would give ExxonMobil access to Permian Basin shale oil in Texas and New Mexico. Combined, ExxonMobil and Pioneer would become the largest producer of oil and natural gas in the Permian Basin, the field that produces more than 40 percent of America’s oil.

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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