Unexpected production hiccups and scheduled turnarounds have helped keep the United States base oils market fairly balanced at a time when demand has started to slow down and inventories to mount. Recently implemented restrictions on U.S. exports to Mexico were expected to result in lengthening export spot availability – at least over the next couple of weeks – and this, together with increased supplies of certain grades, was exerting downward pressure on spot pricing.
The trend was mostly noticeable in the API Group III segment as supply of most grades was plentiful and demand had been partly dampened by the United Auto Workers strike on the three biggest U.S. automakers – Ford, General Motors and Stellantis. Paralyzed operations at several auto plants had resulted in reduced consumption of Group III oils used in factory-fill lubricants and transmission fluids. A shortage of car parts due to the strike had led to lower consumption of engine oils at garages that repair cars and offer oil changes, according to sources. The strike ended last week with a tentative agreement between the manufacturers and the union. Lubricant suppliers were expected to have enough inventories to cover immediate requirements once car manufacturing resumed.
The downward pressure on Group III pricing was evidenced by SK Enmove’s implementation of a posted price decrease of 10 cents/gal on the company’s Group II+ and Group III base oils, which went into effect retroactively on Nov. 1. The decrease was expected to bring the company’s prices more in line with those of other Group II+ and Group III suppliers.
Aside from plentiful imports, the Group III segment had seen supply grow due to increased production from a number of domestic base oil producers.
Slowing demand for heavy grades in the Group I and Group II categories has also started to place pressure on values, although the recent turnaround at HollyFrontier’s Group I unit was limiting Group I base oil availability, while the Excel Paralubes Group II base oil unit in Lake Charles, Louisiana, was heard to have been shut down briefly last week due to unexpected production issues. This had put a dent on Group II spot availability from the producer, according to sources.
HollyFrontier has restarted its Group I plant in Oklahoma following a 45-day turnaround but was anticipated to offer few spot cargoes through the end of the year as the producer was rebuilding inventories.
The Group II segment had started to lengthen due to a seasonal demand slowdown in the domestic market, coupled with restrictions on exports to Mexico. The Mexican government now requires for importers of U.S products to apply for a license, or for those who already hold one, to submit additional documentation. The new requirements on all fuel and petrochemical imports – with the exception of gasoline and diesel – were imposed to stop illegal imports and smuggling and increase the government’s tax revenue.
Several shipments were heard to have been detained at the U.S.-Mexico border, waiting for paperwork to clear. According to sources, the Mexican government has started to grant temporary, 60-day permits so shipments can clear customs while the proper license is processed, although details remained unclear. While it seems that the difficulties in exporting to Mexico may be short-lived, the new restrictions may discourage some suppliers from pursuing opportunities in Mexico and force them to look for alternative outlets instead.
Spot supply was also expected to lengthen due to softening demand from Latin America and Europe. One promising spot remained Brazil, as an extended turnaround at a key base oil facility there compelled buyers to look for base stocks from alternative sources. Petrobras started a two-month turnaround at its plant in Rio de Janeiro in late October, and it was straining the producer’s ability to meet contractual obligations. While several U.S. shipments have made their way to Brazil this year, there have also been reports of cargoes from Asia having been finalized for shipment to Brazilian ports in recent weeks. About 4,000 metric tons were concluded for shipment from Mumbai to Rio de Janeiro in late October to early November. A 2,650-ton parcel was discussed for prompt shipment from Singapore to Rio de Janeiro. A 4,000-ton lot was mentioned for lifting in Onsan, South Korea, to Rio de Janeiro in early December.
Other transactions into South America involved a 3,000-ton to 4,000-ton cargo shipped from Port Arthur, Texas, to La Plata, Argentina, in late October.
There have also been reports of shipment delays for vessels crossing through the Panama Canal due to a drought and low water levels at Gatun Lake. The restrictions were expected to stretch into 2024 and drive freight costs up. Vessels carrying petroleum products, hydrocarbon gas liquids, and chemicals make up one-third of trade transiting the canal, according to the Energy Information Administration.
On the naphthenic base oils front, business remained healthy, with the light oils described as snug compared to their heavier counterparts. There was also brisk export activity into Asia, Europe and Latin America and this helped support prices at current levels.
Some pale oil shipments have been affected by the newly implemented restrictions on imports into Mexico. “We have railcars sitting at the border collecting demurrage. It’s a headache,” a supplier noted. The Mexican government was heard to be processing license applications, and some permits have been issued, with a number of shipments expected to be cleared by next week.
Just like in the paraffinic segment, availability in the naphthenic market has been impacted by a brief unexpected production outage at one plant and an imminent turnaround at another unit.
Cross Oil’s plant in Smackover, Arkansas, experienced a brief unplanned shutdown in the second half of October, but the plant has been restarted.
San Joaquin Refining will begin a three-week turnaround at its naphthenic base oils plant in Bakersfield, California, on Nov. 13. The producer was expected to have built inventories to maintain supply during the outage but was unlikely to have extra availability after the maintenance program, particularly of the light grades. San Joaquin has not scheduled any turnarounds for next year.
Calumet plans to have a 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.
In downstream markets, there were expectations that blenders would be implementing price increases on finished products 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.
Independent manufacturers had announced increases of up to 10%-18% on lubricants and greases, and up to 9% for brake fluids, with effective dates between Oct. 16 and Oct. 30. Additionally, major suppliers had communicated increases on lubricants of up to 10% to 15% for early to mid- November implementation. However, the increases faced resistance from buyers as demand for finished products has been sluggish.
Two additive suppliers have also communicated price markups due to steeper base oil prices and inflation, 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.
Meanwhile, base oil market participants were relieved that crude oil and feedstock prices have fallen, following a month of very volatile values that spiked at the start of the Israel-Hamas conflict in early October. Base oil premiums over competing fuel prices were firm, encouraging refiners to maintain production rates.
Crude futures plunged by 4% to their lowest levels since July on a strong dollar and concerns about shrinking demand following weak economic data emerging from China, against unchanged production levels from OPEC+ member countries.
On Nov. 7, West Texas Intermediate (WTI) December futures settled on the CME at $77.37/barrel, compared to $81.02/bbl on Oct. 31.
Brent futures for January delivery settled on the CME at $81.61/barrel on Nov. 7, from $87.41/bbl for December futures on Oct. 31.
Louisiana Light Sweet crude wholesale spot prices were hovering at $83.74/barrel on Nov. 6, from $85.13/bbl on Oct. 30, according to the Energy Information Administration.
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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