Weekly U.S. Base Oil Price Report


To many suppliers’ relief, base oil demand has shown an uptick over the last two weeks, but participants acknowledged that activity was not yet at “normal levels” for this time of the year. Traditionally, requirements flourish in March, as lubricant and finished products manufacturers prepare inventories to meet growing downstream demand ahead of the summer driving season starting in late May.

Base oil consumption had remained lackluster for most of last year, and sellers were concerned that the same trend would be perpetuated this year. They were also keeping a watchful eye on crude oil and feedstock prices as recent increases have placed pressure on base oil values.

West Texas Intermediate crude oil futures were flirting with the $80 per barrel level early in the month, compared to the high $60s/bbl in December 2023, and are now trading in the high $70s. Operating rates at base oil plants could also be reduced if diesel demand and prices strengthened further, which would reduce base stock supplies and allow for a more balanced supply and demand scenario.

Analysts were also watching gasoline prices as they were anticipated to climb as the summer approached. The two main refinery additions expected for this year – Nigeria’s 650,000 barrels per day Dangote and Mexico’s 340,000 b/d Dos Bocas refinery – have been plagued by delays and are unlikely to have an impact on gasoline supply in the first half of 2024, increasing the possibility of potential summer spikes, OilPrice.com reported.

Crude oil futures were mixed on Monday as traders awaited a new round of February inflation data and reports on the global crude outlook from OPEC and the International Energy Agency this week, CNN.com reported. Prices slipped on Tuesday as the Energy Information Administration raised its U.S. oil output forecast for 2024 and OPEC maintained its 2024 and 2025 global demand forecasts. The OPEC predicted that world crude demand would increase by 2.25 million b/d in 2024 and by 1.85 million b/d next year. Ongoing geopolitical tensions stemmed the price decline.

On Tuesday, March 12, WTI April 2024 futures settled on the CME at $77.56 per barrel, compared to $78.15/bbl on March 5.

Brent futures for May 2024 delivery settled on the CME at $81.92/barrel on March 12, from $82.04/bbl on March 5.

Louisiana Light Sweet crude wholesale spot prices were hovering at $81.62/barrel on March 11, from $82.27/bbl on March 4, according to the Energy Information Administration.

Market players said that crude oil prices would likely have to climb above $80/bbl and stay at that level for a prolonged period before refiners would step out with any base oil posted price adjustments.

Two initiatives calling for a 20 cent-per-gallon increase on base oils that were communicated in late February faced significant resistance because buyers did not think conditions justified the increases. The producers were heard to have granted temporary value allowances for the full amount of the increase until further review, and some customers expected delayed implementation of the hikes. There were reports that buyers were also hoping to achieve TVAs this month or in April from suppliers who had not called for price increases because base oil supplies seemed to be outpacing demand and downstream fundamentals have not improved significantly.

Sellers were also worried about climbing freight rates, as the ongoing transportation disruptions in the Red Sea and Suez Canal have resulted in transportation price increases of about 50%, and sometimes, the shipper has to shoulder the increases until the cargoes are delivered. In some cases, suppliers were forced to absorb some of the increases in order to be able to place their products. The price pressure was affecting API Group III values in particular, as most Group III base oils utilized in the Americas are imported from Asia and the Middle East. Houthi attacks continued in the Red Sea, with the rebels firing several missiles at the Liberia-flagged container ship “Pinocchio,” en route to the Suez Canal, claiming the hit was accurate on what they believed was an American-owned tanker, OilPrice.com reported.

At the same time, Group III spot indications had been under pressure because of ample availability since late last year, but prices have stabilized on more limited supplies. SK Enmove was heard to have scheduled a turnaround which will begin on March 13 and will be completed by the end of April. According to sources, 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.

Meanwhile, Group I and Group II supply was deemed more than adequate to cover domestic demand, and spot prices continued to be exposed to downward pressure. There were also plentiful light grade availability from rerefiners as used oil collection rates have increased. The ample supplies led producers to pursue export opportunities as these helped keep inventories from building up. The permanent closure of ENI’s Group I plant in Livorno, Italy, fed speculation that export opportunities may arise to move U.S. Group I cargoes to Europe in the coming months, depending on demand levels and prices. This week, a 4,500-metric ton cargo of base oils was being discussed for prompt shipment from Paulsboro, New Jersey, to Luanda, Angola. A 2,500-ton lot was on the table for shipment from Paulsboro or the U.S. Gulf to Singapore in mid-April.

Buying interest from Brazil has shown a small uptick, but prices for U.S. cargoes were not considered competitive unless they were reduced because a domestic supplier has slashed values over the last two months. Nevertheless, discussions for U.S. exports were heard to be ongoing. There was also talk about a large cargo to be shipped from Brazil to West Coast India in the second half of March, but it was not clear what the origin of this cargo was and whether it was being re-exported.

U.S. base oil volumes moving to Mexico have declined because of more stringent import regulations imposed by the Mexican government to restrict the import of base oils used as fuel extenders. However, participants said that not only base oils had been affected by the new rules, but also finished lubricants, additives, greases and other products that are not used in fuel blending. Sources said that additional import licenses had been granted over the last couple of months and more products have started to move to Mexico, but there was concern that there would be further issues down the road once the current licenses expire as only temporary and one-year licenses have been processed, according to sources. “Base oils, plus some additives, are moving into Mexico, although not at the same rate as before the restrictions were put in place. License issues are not a major factor, but could be when the current ones expire,” a source commented. Buying interest in Mexico was on the rise, but buyers were hoping to bring offer prices down.

On the naphthenic base oils front, conditions were fairly stable, with supply and demand deemed balanced-to-tight and prices staying on a steady course, although participants said that price pressure was building given dwindling supplies of some grades and firm crude oil prices.

Suppliers expected high viscosity pale oil requirements from the tire, asphalt and rubber modifier segments to pick up over the next few weeks, while demand for the lighter grades was fairly robust. There continued to be regular shipments to Europe and Latin America, which helped keep domestic inventories on the lean side.

Cross Oil was heard to have scheduled a three-week turnaround at its plant in Smackover, Arkansas, this month, which comes on the back of recent maintenance programs at two other facilities and a brief shutdown at the producer’s unit in mid January due to freezing winter temperatures, and this was expected to tighten supply in the short term.

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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