Crude futures plunged to their lowest levels since July last week and had been on a downward trend over the week until Monday, when they rose by more than 1% after OPEC’s monthly market report eased worries about weakening demand. The West also considered stricter sanctions on Russia as it manages to move thousands of barrels despite the restrictions. Oil prices finished the day fairly unchanged on Tuesday as Middle East tensions seemed to be abating and U.S. President Joe Biden hoped to secure the release of hostages held by the Hamas militant group. 

On Nov. 14, West Texas Intermediate (WTI) December futures settled on the CME at $78.26/barrel, compared to $77.37/bbl on Nov. 7.

Brent futures for January delivery settled on the CME at $82.47/barrel on Nov. 14, from $81.61/bbl on Nov. 7. Brent futures were hovering at $93.79 per barrel on Oct. 20, according to Reuters.

Louisiana Light Sweet crude wholesale spot prices were hovering at $81.31/barrel on Nov. 13, from $83.74/bbl on Nov. 6, according to the Energy Information Administration.

Recent base oil production disruptions and plant turnarounds have led to snug conditions in some segments of the market, in particular for the API Group I and Group II light grades, while most of the heavy-viscosity grades were more readily available. Demand for the heavier grades tends to weaken in the winter months, and suppliers were trying to find buyers for those grades, with some sellers adjusting export spot prices down to attract business.

Some domestic buyers were also in need of replenishing stocks as they have been keeping fairly lean inventories throughout the year, but orders did not go beyond those volumes generally purchased under contract. Suppliers expected demand to remain fairly flat over the next few weeks.

A 45-day turnaround at HollyFrontier’s Group I unit in Tulsa, Oklahoma, which was completed a few days ago, affected spot availability of Group I grades. Even though the plant was heard to be up and running, spot supplies from the producer were expected to be limited through the end of the year.

Both in the Group I and the Group II segments, inventories were lower than they would have been had producers been running base oil plants at full rates. However, a number of refiners had increased diesel production in detriment to base oil output given strong diesel demand and high prices earlier in the year.

Additionally, a key Group II producer was heard to have shut down its plant for a few days earlier this month due to unexpected production issues. This has likely taken several barrels out of the supply system.

The Group I and II segments had also been impacted by the restrictions on exports to Mexico, as the Mexican government now requires a special license to import most fuels and petrochemicals, with the exception of gasoline and diesel. This new requirement was expected to stop the smuggling and illegal distribution of these products.

While several shipments were heard to have been waiting for permits in holding areas near the U.S.-Mexico border, some light grades have been allowed in as temporary, 60-day permits were granted for base oils utilized in lubricant production. “Most of our Mexican customers have received their short-term permits,” a supplier noted. There still seemed to be delays with rail shipments, while cargoes transported by truck appeared to be less affected by the restrictions. A number of customers requested cargoes to be shipped to Brownsville, Texas, to be then transported over the border on trucks, but some Mexican customers were heard to be having difficulties securing trucks. Product transported on vessels or barges seemed to have been the least affected by the restrictions.

U.S. suppliers were also pursuing opportunities to countries in South America, with demand from Brazil said to be steady as a key Brazilian producer’s plant was undergoing a two-month turnaround. U.S. sellers enjoyed an advantage in Brazil because of pricing and distance, but buyers in South America had their eye on attractively-priced products from Asia as well. A 5,000-metric ton parcel was expected to be shipped from Paulsboro, New Jersey, to Brazil this month. There were also discussions involving a 2,650-ton cargo originating in Singapore for prompt shipment to Rio de Janeiro, Brazil. A 4,000-ton lot was quoted for shipment from Mumbai, India, to Rio de Janeiro in late October and early November. About 4,500 tons were on the table for shipment from Onsan, South Korea, to Rio de Janeiro in Dec. There was also a 9,000-ton cargo quoted for shipment from South Korea to Ecuador and Peru in November, and 2,000 tons of lube oil expected to be shipped from Ulsan, South Korea, to the Mississippi River in the second half of November.

Discussions about U.S. shipments possibly making their way to India in the next few weeks have been heard. India typically receives U.S. exports during the last quarter of the year when suppliers are eager to lower inventories at home. This year, however, there appeared to be less pressure to reduce inventories as U.S. producers have been able to keep a more balanced supply and demand ratio. About 12,000 tons were anticipated to be shipped from the U.S. Gulf to Mumbai in the first half of November.

The Group III cuts were deemed plentiful, and this was exerting pressure on pricing. Supply originating in the Middle East and Asia has grown as most plants were running well and demand in those regions has also declined as consumers strive to end the year with low inventories to avoid paying taxes on idle stocks. Domestic production of Group III grades was on the rise as well.

Spot prices on all grades have slipped by a few cents to 5 cents per gallon week on week, with the higher drop observed in Group III grades. SK Enmove also adjusted its Group II+ and Group III posted prices down by 10 cents/gal on Nov. 1. No other posted price adjustments were reported during the week.

In the naphthenic base oils camp, demand was described as steady for most grades, although the heavier grades were seeing weaker demand than the lighter cuts. The fall in crude oil and feedstock prices was placing downward pressure on naphthenic base oils, particularly on formula-based contracts tied to a diesel index, which has slipped in recent weeks.

Export transactions were fairly brisk, and shipments into Mexico that had been detained at the border were expected to be cleared in the next couple of weeks as temporary permits were being processed.

The supply and demand balance has been partly affected by a brief unexpected production outage at one plant in late October, and an ongoing turnaround at another unit, which was expected to start this week.

San Joaquin Refining was scheduled to embark on a three-week turnaround at its naphthenic base oils plant in Bakersfield, California, on Nov. 13. The producer was anticipated to meet contract obligations but was unlikely to have extra availability after the maintenance program, particularly of the light grades. The turnaround was also expected to help the producer manage inventory levels of the heavy 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. In order to fulfill requirements during the outage, the producer was expected to start building inventories ahead of the shutdown.

In downstream markets, discussions regarding the implementation of price increases on finished products continued. Some manufacturers have already raised their prices in the second half of October or first half of November as they needed to transfer the August and September base oil posted price increases down the supply chain. Lubricant prices were also pressured by steeper 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. Major suppliers had communicated increases on lubricants of up to 10% to 15% for early to mid-November implementation. However, there may be variations in the amounts of the increases and the implementation dates, as producers were concerned about losing market share at a time when demand for finished products remained lackluster.

Three additive suppliers were also hoping to implement price increases due to inflation and the higher cost of base oils and transportation, with one lubricant additive producer communicating markups of up to 8%, effective Nov. 15, and a second additive manufacturer expected to mark up prices by up to 10%-12% in mid-November as well. A third additive manufacturer communicated an increase of up to 6%, effective Dec. 1. Whether these increases can be pushed through in their entirety remained to be seen, as consumers were resisting the increases on account of plentiful additive supplies and lukewarm lubricant demand.

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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