The President’s Day holiday on Monday led to a slow start to the week, but participants expected business to pick up the pace over the next few days as lubricant manufacturers have started to build base oil inventories for the spring production cycle. There were expectations of a robust driving season compared to the previous three years as most COVID-related restrictions have dissipated. Many people who had postponed travel plans were expected to take to the road this summer, leading to an increase in fuels and lubricants consumption. A freezing winter storm sweeping through parts of the United States may cause traffic and power disruptions this week.
Sources also commented that the quest toward clean, energy-efficient transportation and growing demand for electric vehicles in North America and Europe would also be driving many changes in lubricants segments this year.
There was still a sense of uncertainty pervading the market, with participants keeping a close eye on crude oil and feedstock prices, as well as downstream market conditions. Crude oil has been trading within a fairly narrow range, but prices were strongly swayed by geopolitical and economic factors, making them difficult to predict. Fears of a global supply glut continued, despite the price cap imposed on Russian oil and Moscow’s plan to cut production significantly, which seemed to have had little impact on futures so far. Tensions between the United States and China were also anticipated to affect trading.
Crude oil futures fell on Tuesday during a volatile session on growing concerns about a global economic slowdown that would result in lower demand for crude oil. All eyes were on news coming out of the U.S. Federal Reserve’s meeting on Wednesday, with expectations pointing to a continuation of interest rates hikes. The downward price pressure was partly offset by expectations of increased demand from China against production curbs by OPEC+ members and upcoming cuts by Russia.
On Feb. 21, WTI March futures settled on the CME at $76.16/barrel, compared to $79.06/bbl on Feb. 14.
Brent futures for April delivery settled on the CME at $83.05/barrel on Feb. 21, from $85.58/bbl on Feb. 14.
Louisiana Light Sweet crude wholesale spot prices were hovering at $80.26/barrel on Feb. 17, from $83.94/bbl on Feb. 13, according to the Energy Information Administration. (There was no trading on Feb. 20 due to the President’s Day holiday).
Fluctuating diesel and vacuum gasoil prices also influenced feedstock allocations at the refinery level, prompting a number of refiners to limit base oil output and increase fuels production, depending on prevailing margins. As a result, availability of a number of base oil cuts has tightened, particularly within the API Group I segment. Bright stock was one of the grades that appeared less available while demand was deemed healthy.
Group II base oil availability has also been strained by reduced supply levels as the Excel Paralubes Group II plant in Westlake, Louisiana, was undergoing a turnaround that started in late January and may last up to two months, with the plant scheduled to be restarted in late March. Spot supplies, particularly of the heavy grades, were heard to be limited. A second large producer might soon be starting to build inventories ahead of a turnaround and catalyst change in the second quarter.
The Group III segment displayed balanced to slightly long conditions, as the 6 centiStoke and 8 cSt grades were more readily available than the 4 cSt cut, which was enjoying heightened attention from the automotive segment. There was mention of temporary value allowances or adjustments being granted into select accounts to encourage orders.
There were reports of Mexican buyers expressing interest in U.S. cargoes, both for light and heavy-viscosity grades, and suppliers were also expecting a pick-up in demand from Brazil and other South American nations. For the time being, however, export movements into these destinations was muted.
On the naphthenic base oils front, prices have stabilized, following 20 cents/gal and 30 cents/gal decreases implemented in mid-January. Firmer crude oil prices, together with a balanced-to-tight supply and demand ratio offered support to current price indications.
Pale oil availability was expected to gradually increase as San Joaquin Refining successfully completed a turnaround at its Bakersfield, California, refinery on Jan. 21. Spot volumes had become more limited given the turnaround and healthy requirements, and demand was expected to rise steadily in the coming weeks as activity in downstream segments, particularly those connected to industrial applications, was expected to strengthen. Suppliers commented that they had seen increasing buying interest for spot base oils globally, but no product shortages were noted.
At the same time, finished product prices have been exposed to downward pressure due to demand uncertainties and falling base oil values, with buyers requesting discounts and several producers acquiescing to the pressure by lowering prices so as to protect accounts. A number of major lubricant manufacturers decreased values by up to 6% to 8%, while several independent blenders adjusted lubricant prices down between 40 cents/gal and 55 cents/gal during the first few weeks of the year.
Downward pressure on finished product prices persists, with a few suppliers granting isolated discounts. Lubricant manufacturers said that sales had been on the slow side in previous weeks, but orders seemed to be picking up slightly. The automotive segment appeared more guarded as buyers delayed finished product purchases in hopes of seeing additional price decreases.
On the other hand, additive prices seemed to be generally holding as a majority of suppliers have not revised values, citing a snug supply scenario as one of the factors supporting the current price structure. Buyers continued to press for discounts as base oil prices have come down from last year’s lofty levels.
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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