Within the Group II+ and Group III segments, supply and demand were balanced to slightly long, depending on the grade. Base oils within these categories were expected to see heightened competitive action in the U.S., as more supplies were anticipated to be arriving from South Korea and the Middle East over the next few months. Higher prices than in other regions, along with healthy buying interest, encouraged suppliers to ship more product to the U.S. There has been incremental use of Group III cuts in automotive applications as original equipment manufacturers strive to meet more stringent fuel efficiency requirements and emission reductions. However, strengthening prices in Europe may draw some of the cargoes to that region, while an upcoming turnaround at a Group III plant in Asia may also result in reduced supplies.

Group I and Group II suppliers said that demand had started to pick up, meeting expectations of a gradual increase ahead of the spring lubricant production cycle. Sources said that February and March are typically key months and a true picture of where demand stands should become better defined in the coming weeks.

Strained gasoil, diesel and jet kerosene supplies together with climbing prices may sway refiners to favor production of fuels and reduce base oil output, which could limit spot availability, sources said.

Group II domestic availability may also see some tightening this month and the next as the Excel Paralubes Group II plant in Westlake, Louisiana, will be down for approximately two months during a scheduled turnaround. The producer was expected to have built inventories to cover contractual obligations during the outage, but spot supplies may be limited. This information was not confirmed by the producer directly. A second Group I and Group II producer was contemplating a two week-turnaround starting at the end of March. A third Group II producer was expected to shut down its plant for maintenance in the second quarter and may be starting to build stocks in coming weeks.

Export activity was still slow, particularly as Mexican buyers held off on purchases hoping for U.S. base oil prices to reflect the decreases seen on domestic sales. There has been buying appetite for Group II grades from Brazil, and buyers seem to prefer U.S. products to those sourced in Asia given faster delivery times and fewer logistical issues, but demand remained generally lackluster as lubricant business has yet to take off following the year-end interlude. There has been some budding interest in other parts of South America. Details of 3,400-metric ton shipped from Houston, Texas, to Zarate, Argentina, back in December emerged this week. A 1,000-ton parcel was also being discussed for shipment from Pascagoula, Mississippi, to West Coast India in the first half of February.

On the naphthenic base oils side, prices may get support from a tighter supply and demand balance as a four-week turnaround has started at San Joaquin Refining’s Bakersfield, California, refinery. The turnaround began on Jan. 21 and was expected to lead to reduced spot availability at a time when orders may start to pick up.

A more balanced Group I and Group II supply and demand ratio would also help support prices on the paraffinic side, sources noted, particularly since crude oil and feedstock values have moved up compared to earlier in the year, when posted price decreases were announced. On Jan. 10, West Texas Intermediate futures were trading near $75 per barrel, but were flirting with the $80/bbl level last week.

Oil futures plunged early on Tuesday as there continued to be plentiful Russian oil in the market – despite international sanctions on the country’s crude exports – while potential interest rate hikes could affect demand moving forward. However, prices moved up later in the day on a weakening dollar and data showing higher U.S. demand for crude and refined products in November.

On Jan. 31, WTI March futures settled on the CME at $78.87/barrel, compared to $80.13/bbl on Jan. 24.

Brent futures for March delivery settled on the CME at $84.49/barrel on Jan. 31, from $86.13/bbl on Jan. 24.

Louisiana Light Sweet crude wholesale spot prices were hovering at $81.37/barrel on Jan. 30, from $84.62/bbl on Jan. 23, according to the Energy Information Administration.

Aside from supply and demand factors, base oil prices were likely to be affected by developments in the downstream lubricants segment. Major lubricant producers have communicated lubricant price decreases of up to 8 percent, effective mid-January, while several independent blenders have decreased prices between 40 cents/gal and 55 cents/gal, reflecting lower base oil values amid sluggish market conditions. The decreases have spurred some buying interest, but it was still fairly early to say where demand may lead, according to sources. Suppliers hoped that the decreases would promote more sales in coming weeks.

Additive supply levels have shown a vast improvement compared to the second half of 2022, when shortages of many products were ubiquitous, but producers have not adjusted prices down, despite blenders’ appeals and lower posted base oil prices.

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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