SK Enmove informed customers that the company would be decreasing all Group II+ and Group III prices by 30 cents per gallon, with an effective date of Jan. 1, 2024. The producer had previously adjusted its Group II+ 70N grade by 10 cents/gal and all of its Group III grades by 15 cents/gal, with an effective date of Dec. 1.

Also on Jan. 1, Motiva lowered its Group II+ and Group III base oils by 30 cents/gal. This initiative seemed to complete a previous round of increases which had seen the producer decrease its Group II 100N grade by 30 cents/gal and its 220N and 600N grades by 50 cents/gal on Dec. 1.

Petro-Canada decreased its Group II+ 65 cut by 30 cents/gal, and all of its Group III grades by 30 cents/gal, with an effective date of Jan. 1 as well. Previously, on Dec. 8, the producer had lowered its Group II 70, 100 and 200 grades by 30 cents/gal; its Group II 300/350 and 600/650 base oils by 50 cents/gal, and its Group II+ 100 grade by 15 cents/gal. The Group II+ 65 and Group III cuts had not been revised at that time.

With demand showing a steady decline during the last few weeks of 2023 – a seasonal occurrence that seemed to affect the market more profoundly this year – it was not completely unexpected to see posted price decrease initiatives emerge towards the end of the fourth quarter. Spot prices had also been gradually losing ground as suppliers tried to encourage domestic sales, as well as export transactions. These fundamentals were impacting contract negotiations and there was talk of deeper discounts over posted prices being agreed to compared to previous years.

A majority of producers and rerefiners adjusted down their posted prices in late November through early December, with Group I grades going down by 20 cents/gal and Group II grades by 15, 30, 35 and 50 cents/gal, with the heavier grades reflecting the larger decreases. Group II+ prices were down by 10, 15, 25 and 30 cents/gal. Group III went down by 30 cents/gal on Jan. 1, but SK had also adjusted its postings down by 15 cents/gal on Dec. 1.

On the naphthenic base oils front, suppliers decreased prices by 15 cents/gal and 20 cents/gal between Dec. 15 and Dec. 20. While demand was also showing signs of slowing, it seemed to be more balanced against supply than on the paraffinic side, with the light grades described as tight. This could be partly attributed to planned and unplanned production shutdowns at naphthenic base oils facilities in the third quarter, along with healthy demand from the export segment.

Naphthenic base oil producer San Joaquin Refining completed a scheduled turnaround at its refinery in Bakersfield, California, in early December, but shut down the plant again due to technical issues with equipment installed in the hydrotreater. The producer anticipated to resume operations during the last week of December, but a restart could not be confirmed. SJR was likely to take some time to rebuild inventories, with the supplier hoping to be able to fulfill its backlog of orders in early January. 

On the paraffinic side, Group I and Group II supplies were deemed plentiful to meet domestic demand, while export business has eased into destinations such as Mexico as a result of stricter import requirements and documentation on refined products.

Brazil, on the other hand, continued to show strong interest in U.S. cargoes following an extended turnaround at one of the local refineries, and an unexpected shutdown at a second facility. Brazil was also anticipated to import additional naphthenic base oils as a domestic facility was preparing to shut down for maintenance. There may also be a pickup in base oil demand in Brazil in January ahead of the Carnival festival in mid-February. In shipping circles, it was heard that a 4,000-metric ton cargo was likely to have been lifted in Paulsboro, New Jersey, to Rio de Janeiro, Brazil, on Dec. 26.

U.S. Group II suppliers were still pursuing opportunities into more distant destinations like India, but the market there was ostensibly saturated as several cargoes were expected to arrive in January, and demand was not particularly robust, with buyers relying heavily on domestic production of base oils as well as imports.

There was still heightened concern surrounding Iran-backed Houthi militants’ attacks on commercial vessels in the Red Sea, which have forced shipping companies to avoid passage through the Suez Canal and reroute their ships around the southern tip of Africa. This resulted in longer demurrage, extended delivery times and increased insurance and freight rates. Tensions flared up in the region on Sunday as U.S. helicopters repelled a militants’ attack on a Maersk container vessel in the Red Sea, sinking three Houthi ships and killing 10 militants, Reuters reported.

In terms of Group III base oils, buyers and suppliers worried that product shipped from the Middle East would be prevented from reaching the Americas or would incur much higher prices. There were reports that producer Abu Dhabi National Oil Co. had temporarily shut down its Group II and Group III base oils plant in Ruwais, United Arab Emirates, as demand had plummeted, and that a second Middle East supplier had not made any shipments to the U.S. and Europe in December, but this information could not be confirmed with the suppliers directly.

The Red Sea disruptions might lead to fewer cargoes coming into the U.S. from the Middle East over the next few weeks, but Asian shipments were anticipated to continue unabated, although demand in general has been lackluster and some shipments were facing delays in the Panama Canal. Group III base oils were anticipated to be less readily available over the next few weeks, and spot prices have consequently stabilized.

Lubricant manufacturers had been struggling to recoup base oil price increases implemented back in August and September 2023, and had communicated increase initiatives of their own for late October and early November implementation. However, the latest base oil price decreases have lifted some of the upward price pressure and allowed some finished product suppliers and distributors to either leave prices unchanged, or grant small discounts in order to protect market share.

Participants were also keeping an eye on crude oil and feedstock prices, as they continued to be swayed by geopolitical tensions and economic forecasts. Some refiners have started to favor the production of fuel versus that of base oils due to improving margins, which might help reduce base stock inventories.

Crude oil futures jumped in early trading on Tuesday, the first trading session of the New Year, on concerns about Middle East supply disruptions after a U.S. helicopter repelled Houthi attacks in the Red Sea and the reported arrival of an Iranian warship on Monday. News of an economic stimulus plan in China also boosted prices as it may lead to increased demand in the top oil importing nation. However, futures slipped later in the day on easing expectations for U.S. interest rate cuts and decreasing concerns that tensions in the Red Sea might disrupt supplies.

On Tuesday, Jan. 2, WTI February 2024 futures settled on the CME at $70.38/barrel, compared to $75.57/bbl on Dec. 26.

Brent futures for March 2024 delivery settled on the CME at $75.89/barrel on Jan. 2, from $81.07/bbl for Feb. futures on Dec. 26.

Louisiana Light Sweet crude wholesale spot prices were hovering at $74.54/barrel on Dec. 29, from $76.29/bbl on Dec. 22, according to the Energy Information Administration. There was no trading on Dec. 25 due to the Christmas holiday and on Jan. 1 due to New Year’s.

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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