West Texas Intermediate futures were trading down by 3.5% on Monday afternoon and were also lower on Tuesday after briefly ticking up, closing below the $82.79 per barrel mark at which they had settled on Oct. 6 – the day before Hamas invaded Israel. Oil prices were weighed down by signs of slowing global demand, particularly in China, as well as cautious relief that the Israel-Hamas war has not yet spilled over into a broader regional conflict, The Wall Street Journal reported. Increased crude oil production in Nigeria and Angola, as well as in the United States also placed downward pressure on prices.

Despite concerns about the U.S. economy earlier in the year, analysts were surprised to see that their estimates were outpaced by the third quarter gross domestic product growth rate coming in at 4.9% compared to the predicted 4.2%, and significantly higher than the second quarter GDP growth of 2.1%.

On Oct. 31, West Texas Intermediate (WTI) December futures settled on the CME at $81.02/barrel, compared to $83.74/bbl on Oct. 24.

Brent futures for December delivery settled on the CME at $87.41/barrel on Oct. 31, from $88.07/bbl on Oct. 24.

Louisiana Light Sweet crude wholesale spot prices were hovering at $85.13/barrel on Oct. 30, from $87.09/bbl on Oct. 23, according to the Energy Information Administration.

Base oil suppliers were bracing for a potential slowdown in consumption levels as buyers generally prefer to end the year with lean inventories to avoid tax repercussions. “The U.S. market is still slow, or at best, flat,” a source commented, while others said that it was difficult to be very optimistic as demand has been lackluster most of the year and orders tend to weaken in November.

Some buyers had held off on procuring cargoes and were in need to replenish stocks before depleting inventories, but most consumers were taking those volumes specified in their contracts.

If a large product overhang builds over the next few weeks, producers might need to adjust plant operating rates, sources noted. Some refiners have been producing more diesel and other distillates in lieu of base stocks because of higher margins and heightened demand and may continue to do so.

The light and mid-viscosity base oils were described as snug compared to their heavy-viscosity counterparts, which were more exposed to downward price pressure. The API Group III grades were also teetering on the edge of current spot price levels because availability was plentiful, and it was heard that suppliers had adjusted spot prices down to attract business.

Supply of the heavier grades has started to mount due to seasonal patterns and recent imports, particularly of the heavy-viscosity cuts such as bright stock.

Recent and ongoing turnarounds were expected to help restore a more balanced supply and demand scenario in the U.S. The Group I segment has seen reduced availability as HollyFrontier’s Group I plant was undergoing a 45-day turnaround, which was scheduled to be completed this week.

HollyFrontier’s crude unit in Tulsa, Oklahoma, has started up and the base oil units were 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 meet contractual obligations during the shutdown.

Base oil suppliers who are active on the export front were concerned about the impact that a new Mexican government regulation would have on their business. The decree requires importers of numerous petrochemicals and refined products, including base oils and waxes, to secure import licenses to move them into Mexico. Additional documentation was required from those who already hold a license and be presented within 30 days of the implementation of the new rules, which went into effect on Oct. 24. The new restrictions are intended to curb the expanding illicit fuels market and curb the government’s loss of tax revenue. Gasoline and diesel are exempt from this requirement, however. The Secretary of Energy in Mexico has published online instructions on how to obtain a license or submit additional documents for those who already hold a permit and was expected to respond within 15 days of submission.

Participants said that many trucks and railcars carrying base oils and other products were being detained in holding areas at the border between the United States and Mexico until the paperwork was completed. This situation may temporarily discourage exporters to pursue opportunities in Mexico and might result in additional barrels becoming available in the domestic market, at least in the short term, or for export into destinations in Europe, Africa, India or the Middle East.

Meanwhile, there was still keen buying appetite from Brazil, as supply was tight and a key producer’s plant has embarked on an extended turnaround. Petrobras had experienced unplanned production issues in September at one of its plants, and another of the company’s large production facilities was expected to have started a two-month turnaround in October. A 5,000-metric ton parcel was quoted for shipment from Paulsboro, New Jersey, to Rio de Janeiro in November. A 1,000-ton cargo was also expected to be shipped from Gretna, Louisiana, to Santos in second half November.

Many U.S. cargoes have made their way to Brazilian ports, but now they were competing with Asian cargoes, which were being offered at competitive prices. However, U.S. product still enjoyed the advantage of proximity, shorter lead times and less complicated logistics as vessels from Asia were more difficult to secure. Nevertheless, a 4,500-ton lot was expected to be lifted in Onsan, South Korea, in early December for delivery in Rio de Janeiro.

Another South Korean cargo was anticipated to be shipped to West Coast South America – a 9,000-ton parcel for shipment to Ecuador and Colombia in November.

A drought is limiting ship traffic through the Panama Canal, and the resulting delays caused shipping rates through the Canal to reach record highs, the U.S. Energy Information Administration reported on Oct. 31. The Panama Canal is important for trade between the U.S., East Asia and South America. Vessels carrying petroleum products, hydrocarbon gas liquids, and chemicals make up one-third of trade transiting the canal.

On the naphthenic base oils front, participant have also been monitoring crude oil and feedstock prices, as these directly affect refinery decisions, as well as some base oil contracts that are indexed on diesel prices. Refiners also have the option of prioritizing diesel production if base oil demand falters.

However, pale oil demand was described as steady and was particularly healthy for the light-viscosity grades used in transformer oil. Exports into Asia, Europe and Latin America were also fairly robust and helped maintain stable pricing at home as cargoes moving overseas allowed suppliers to keep inventories in check. The newly implemented restrictions on imports into Mexico may affect volumes moving into the neighboring country in coming weeks.

A recent unexpected production outage at one plant and an upcoming turnaround at another unit were anticipated to strain supplies as well.

Cross Oil’s plant in Smackover, Arkansas, experienced a brief unplanned shutdown in second half October but the plant has been restarted.

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, limiting spot availability.

In downstream markets, blenders have communicated price increases on finished products to be implemented in the second half of October/first half of November to reflect the August and September base oil posted price increases, along with elevated packaging and transportation costs.  Increases of up to 10%-18% on lubricants and greases, and up to 9% for brake fluids were on the table, with effective dates 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 to mid-November.

It was not clear whether the lubricant and grease increases would be pushed through in their entirety as some manufacturers worried that the initiatives would dampen demand. Additive increases that were in the pipeline were expected to place additional pressure on prices, with buyers expected to resist these hikes given plentiful supplies.

At least two additive suppliers have communicated price markups due to inflationary pressure and higher base oil prices, with one lubricant additive producer communicating markups of up to 8%, effective Nov. 15, and a second additive manufacturer expected to lift prices by up to 10%-12% in mid-November as well. There were no details forthcoming about other additive producers’ plans regarding prices.

One bright spot this week was the fact that the United Auto Workers strike on Ford, General Motors and Stellantis appeared to be over as all three automakers reached tentative deals with the union. The strike, which began nearly seven weeks ago, has been the longest US auto strike in 25 years, CNN.com reported.  The CNN article also stated that the first five weeks of the strike has had an economic impact of $9.3 billion dollars as reported by the Anderson Economic Group. Their estimate took into account “lost wages for striking workers and other workers who were laid off or forced to work fewer hours; lost earnings for the Big Three automakers; supplier losses including delays and cancellations for car parts orders and the wage impact it has had on workers within the industry; and dealer and customer losses as a result of indefinite delays of new vehicles.”

There were mixed opinions about the impact the strike has inflicted on the lubricants and base oils industry, with some players expecting it to have affected factory-fill demand and others, finished lubricants used in oil changes as a shortage of car parts meant that fewer drivers would have their cars fixed and simultaneously have their oil changed at the garage. All seemed to agree that demand for synthetic lubricants was the most affected. Market observers also said that the strike had likely had the biggest impact on small manufacturers that form part of the automotive supply chain, as these businesses may not have the cash flow needed to sustain operations while the strike lasted.

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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