Market sources reported that ExxonMobil had informed customers that the company would be raising all of its API Group I, Group II and Group II+ base oil prices by 20 cents per gallon with an effective date of Feb. 23, while Paulsboro also communicated an increase of 20 cents/gal for its Group I base oils, effective Feb. 28, to reflect market conditions.

With fundamentals in downstream lubricant and finished products segments showing only marginal improvement compared to the second half of 2023 – when demand was very sluggish and inventories high – buyers had been expected to resist the base oil increases. It was heard that one of the producers had granted customers TVAs equal to the amount of the announced increase, with the said TVA to be reviewed in 30 days. Other buyers may see a delayed implementation of the increase. A few sources admitted that they had been able to negotiate contract prices at higher discounts over posted prices than typically conceded. Sources said that the announced increases helped stem the slide of domestic Group II values, which had been under pressure given oversupply conditions.

Aside from worrying about the possibility that 2024 would be a repeat of 2023, when base oil demand levels fell considerably compared to previous years, producers also expressed concern about increases in production and transportation costs. The ongoing Houthi attacks on commercial vessels in the Red Sea and the need to circumvent the Suez Canal when shipping products from the Middle East and Asia to Europe have resulted in longer voyages around the Cape of Good Hope in South Africa and increased freight rates, which not only impacted the affected routes, but also other shipments as vessel space has been tight. These disruptions have affected Group III shipments in particular, with a number of rerouted Middle Eastern cargoes expected to arrive in Europe over the next several weeks, resulting in a build-up of Group III supplies there.

Some of the recent transportation disruptions in the Panama Canal had also affected Group III cargoes shipped to the U.S., as most volumes consumed in the Americas are imported from Asia and the Middle East. Many of these shipments cross the Panama Canal to reach the U.S. Gulf or the East Coast of South America, and had suffered delays because of low water levels in the canal in the fourth quarter of 2023. While the situation has improved and additional vessels are allowed to traverse the canal, a number of suppliers were avoiding the canal altogether to avoid unpredictable schedules and ensure smooth inventory planning and steady supply to customers.

Producers were also keeping a close eye on crude oil and natural gas prices, given that values have risen significantly since December and this has increased production costs, according to sources. West Texas Intermediate futures are currently hovering near $78 per barrel and had settled at $68.61/bbl on Dec. 12, 2023.

Crude oil futures moved up early in the week as the Organization of the Petroleum Exporting Countries and its allies (OPEC+) announced that they would be extending their voluntary oil output cuts of 2.2 million barrels per day into the second quarter of 2024 to prop up oil prices. However, futures fell on Tuesday on China’s lackluster economic growth prospects. The Beijing government set an economic growth target of 5% for 2024, a goal even the Chinese Premier Li Qiang said would be challenging, given the nation’s deeply troubled property market, heavy municipal debts and weak consumer demand, CNN.com reported. China ranks second in the world for oil consumption, and a weaker economy would translate into lower oil demand.

On Tuesday, March 5, WTI April 2024 futures settled on the CME at $78.15 per barrel, compared to $78.87/bbl on Feb. 27.

Brent futures for May 2024 delivery settled on the CME at $82.04/barrel on March 5, from $83.65/bbl for April futures on Feb. 27.

Louisiana Light Sweet crude wholesale spot prices were hovering at $82.27/barrel on March 4, from $80.93/bbl on Feb. 26, according to the Energy Information Administration.

Domestic base oil demand was anticipated to ramp up ahead of the summer driving season, which unofficially starts on Memorial Day in late May. Blenders typically raise production rates to build up finished lubricant inventories in preparation for the peak oil change season. However, some sources said that given extended oil change intervals in newer car models, engine oil demand has fallen in recent years. The move to electric and hybrid cars has not yet had a significant effect on lubricant demand, but experts predicted that the industry could see consumption begin to falter by 2030, as more light vehicles – around 18%, according to a report by McKinsey & Co. – were expected to be either hybrid electric vehicle or battery electric vehicles.

Given that domestic base oil demand has not been particularly strong in the first two months of the year, suppliers continued to explore export opportunities into India, the Middle East, Europe, Africa and Latin America. A 19,000-metric ton cargo was lined up for shipment from Port Arthur, Texas, to Apapa, Nigeria, in mid-February. Buyers in India had shown keen buying appetite for U.S. cargoes in January and February, but interest appears to have abated. There has been a slight uptick in U.S. product requirements from Brazil, even though the local producer has been able to meet contract commitments and domestic values have been adjusted down. News of the permanent shutdown of the Eni Group I plant in Livorno, Italy, triggered speculation that export opportunities for Group I cargoes moving to Europe may emerge in the coming months, depending on demand levels there.

Prices for Group III grades have stabilized because there are more limited spot cargoes available. A key South Korean Group III producer was heard to have scheduled a turnaround which will begin on March 13 and will be completed by the end of April. The supplier will be able to meet requirements as it has built stocks and has continuous production at other sites, but the shutdown was expected to tighten short-term inventory.

Mexican base oil demand for Group I and Group II grades has grown, but was still below levels seen at the same time last year due to the stricter import requirements imposed by the Mexican government which prevent the light grades from being imported as diesel extenders. Base oil discussions were ongoing, as lubricant consumption has improved and Mexican blenders have started to replenish stocks. Additionally, it was heard that some U.S. offers have been adjusted down significantly to attract business.

On the naphthenic base oils side, supply and demand were characterized as balanced-to-tight, supporting fairly stable pricing. Suppliers expected high viscosity pale oil requirements from the tire, asphalt and rubber modifier segments to improve in the next couple of months, while the lighter grades continued to enjoy steady activity, particularly in the transformer oil sector. Export shipments into Europe, Asia and Latin America were also helping reduce any product overhang.

A key producer’s three-week turnaround this month comes on the back of recent maintenance programs at two other facilities and a brief shutdown at a third producer’s unit in mid-January due to extreme weather, leading to a tightening of pale oil availabilities.

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.

Archived base oil price reports can be found through this link: https://www.lubesngreases.com/category/base-stocks/other/base-oil-pricing-report/

Historic and current base oil pricing data are available for purchase in Excel format.