Most of the recently announced posted price decreases have taken effect but have generated little incremental demand as activity was winding down ahead of the year-end holidays. Base oil producers have made concerted efforts to lower inventories–which have been growing given lackluster demand–and had hoped that the price decreases would encourage additional orders. Base oil producers have also been able to finalize several export transactions, helping keep supply and demand more balanced at home.
Attacks on oil tankers and commercial vessels in the Red Sea have led to freight companies suspending operations in the Suez Canal, which could result in longer transit time for cargoes coming from the Middle East, as well as higher transportation costs.
There was growing concern regarding the possibility that API Group III base oils imported from the Middle East might suffer delays due to several freight companies suspending operations in the Suez Canal after attacks on commercial vessels by Iran-backed Houthi militants operating in the Red Sea.
The aim of the attacks appeared to be to show support for Palestinians as Israel and Hamas continue on a war path, Reuters reported.
Some shipping companies have rerouted vessels around the southern tip of Africa, which extends transportation time by a couple of weeks at least, adding to the cost as well. This means that deliveries will not only take longer but cost significantly more.
Given the current lackluster demand for most base oil grades and increased production of domestic Group III base oils, the impact on the U.S. market may be limited in the short term, sources said. Group III base oil shipments from Asia were expected to continue uninterrupted, meeting current demand.
The U.S. and allies have started to organize a multinational naval operation to protect merchant ships in the Red Sea as the disruptions could have a significant impact on global trade flows.
In terms of current base oil pricing, a majority of producers and rerefiners have lowered their posted prices in late November and early December. The API Group I grades were adjusted down by 20 cents/gal and Group II grades by 15, 30, 35 and 50 cents/gal, with the heavier grades undergoing the larger decreases. Some Group II+ prices were down by 10, 15, 25 and 30 cents/gal and Group III cuts by 15 cents/gal, although most suppliers refrained from adjusting Group III grades.
On the naphthenic front, suppliers have also adjusted prices down, driven by similar fundamentals, although the pale oils market seemed to be tighter, especially in terms of light grades, than the paraffinic segment. This was partially attributed to recent planned and unplanned plant outages and healthy export demand.
Naphthenic base oil producer San Joaquin Refining completed a turnaround at its refinery in Bakersfield, California, in early December, but was forced to shut down the plant again due to technical issues in the newly installed equipment in the hydrotreater. The producer hoped to restart by the end of the week, but appeared to have exhausted the inventories built ahead of the turnaround and will take some time to rebuild them. The company will likely be able to catch up with a backlog of orders in early January.
During the previous week, Ergon communicated a price decrease on its naphthenic oils of 15 cents/gal and 20 cents/gal, effective Dec. 15.
Process Oils Inc./Cross Oil also lowered its naphthenic oils on Dec. 15 by similar amounts as Ergon – 15 cents/gal and 20 cents/gal, with the lighter grades such as those that go into transformer oil applications seeing the smaller adjustments.
Calumet communicated a price decrease of 20 cents/gal on all of the company’s naphthenic base oil grades, effective Dec. 20.
While some of the naphthenic base oils had experienced a seasonal slowdown, demand was deemed generally stable, particularly on the export front. Buying interest from Asia, Latin America and Europe continued to draw product away from the U.S., although a small seasonal drop has also been noted.
Both naphthenic and paraffinic base oil prices had been exposed to downward pressure due to falling crude oil and feedstock values, although oil futures were rather volatile during the week, sliding one day and jumping the next as they were swayed by geopolitical tensions, global economic growth concerns, and the latest news about the oil tanker attacks and trade disruptions in the Red Sea.
On Tuesday, oil futures climbed by more than a dollar per barrel, extending the previous session’s gains, following the Houthi militants’ attacks, which disrupted the passage of oil tankers through the Suez Canal and forced more companies to reroute vessels.
On Dec. 19, WTI January 2024 futures settled on the CME at $73.44/barrel, compared to $68.61/bbl on Dec. 12.
Brent futures for February 2024 delivery settled on the CME at $79.23/barrel on Dec. 19, from $73.24/bbl on Dec. 12.
Louisiana Light Sweet crude wholesale spot prices were hovering at $75.36/barrel on Dec. 18, from $73.80bbl on Dec. 11, according to the Energy Information Administration.
In terms of prices in downstream lubricant segments, lubricant and finished products increases of up to 9%-18% had been announced for implementation between late October and early November. The increases were meant to offset August and September base oil price increases, along with other growing costs such as higher additive prices. However, sluggish lubricant demand, the need to protect market share, and the fresh round of base oil price decreases in late November and early December have made it difficult for manufacturers to implement the intended increases. Some buyers said they saw smaller increases than originally announced, and some noted that their pricing had rolled over from the previous month.
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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