The proposed base oil price increases were intended to lift API Group I postings by 20 cents per gallon, Group II prices by 15 cents/gal, Group II+ by 15 cents/gal to 20 cents/gal, and Group III values by 10 cents/gal to 15 cents/gal, depending on the grade and the producer.

Not all of the suppliers who post prices have announced price increases, however, and two producers – ExxonMobil and Paulsboro – had communicated markups back in February and did not join the last round of notifications. The two February initiatives were expected to be implemented in March as the producers had granted temporary value allowances at the time of the announcements. Since more producers have announced increases, the February initiatives had a better chance of being implemented, sources noted. It was also heard that American Refining Group increased base oil prices by 20 cents per gallon as of March 22 (ARG postings are not listed on the Price Table below). Two other producers and a South Korean Group III supplier had not communicated any price adjustments at the time of writing.

Base oil producers were expected to face some resistance to the hikes from blenders and other end-users because of sluggish downstream demand, along with competitive price adjustments for lubricants and finished products that had chipped away at margins and would make it difficult to offset the base oil price increases. However, base oil producers appeared to be standing firm by their initiatives and were reluctant to grant TVAs or discounts because of feedstock price pressure. Blenders have therefore indicated that they would raise finished product prices to transfer the higher raw material costs at a time when demand typically perks up ahead of the summer driving season. Whether they are successful or not remained to be seen, as inventories were still plentiful, and demand of finished products has not been particularly robust. Some blenders were heard to be running operations at reduced rates to control inventory levels.

Crude oil and vacuum gas oil prices have shown volatility over the last couple of weeks but have moved up since December. They continued to trade at elevated levels due to ongoing geopolitical tensions in several parts of the world and expectations of steady crude oil demand and curbed output by OPEC+ members.

Crude oil futures surged on Monday as Russia’s war on Ukraine increasingly triggered attacks on energy installations. Futures prices were also boosted by comments from the OPEC+ that it saw no need to discuss any policy changes during next week’s planned Joint Ministerial Monitoring Committee meeting. Analysts expected tighter supply as the global economies seemed to be moving away from a recession and the United States Federal Reserve was expected to announce rate cuts this summer. However, futures fell on Tuesday on reports that U.S. crude inventories had risen in the week ending on March 22. Still, Brent futures were trading almost $3 per barrel higher that at the same time last month.

On Tuesday, March 26, WTI May 2024 futures settled on the CME at $81.62 per barrel, compared to $83.47/bbl for April futures on March 19.

Brent futures for May 2024 delivery settled on the CME at $86.25/barrel on March 26, from $87.38/bbl on March 19.

Louisiana Light Sweet crude wholesale spot prices were hovering at $86.26/barrel on March 25, from $86.58/bbl on March 18, according to the Energy Information Administration.

Within the domestic market, Group I supplies were described as balanced-to-snug, and Group II availability has also tightened somewhat, but was still deemed plentiful. Refiners were heard to have dialed back base oil output as much as possible, but diesel demand has not been particularly strong, so it was not offering a satisfactory alternative. Suppliers also kept pursuing export opportunities to control inventories, but even though spot indications have edged up by a few cents per gallon on higher crude and feedstock costs and more limited availability, most bids were not deemed workable given producers’ cost pressure. Some of the upward price movements had also been capped by the ample availability of rerefined light grades.

Group III supply was largely balanced against current demand as suppliers had limited the number of shipments moving from Asia and the Middle East over the last few weeks. Spot availability was expected to improve as more cargoes were likely to be lined up for delivery to the Americas, with some of the transportation issues plaguing shipments gradually being resolved. However, ongoing Houthi attacks on vessels in the Red Sea and the need to reroute shipments around South Africa continued to raise shipping times and costs, exerting upward pressure on global freight rates and insurance, and limiting vessel space on certain routes.

Additionally, SK Enmove’s Group III facilities in South Korea were undergoing a turnaround from mid-March until mid-April. This was expected to tighten short-term inventory, although the producer was expected to meet contract commitments as it had built inventories, and its plants in other countries were also running well. Another South Korean Group III producer, S-Oil, has scheduled a turnaround at its Onsan plant later in the year that will be taking place in September and October.

There has been muted buying interest for U.S. Group I and Group II cargoes from Brazil, given the resumption of output at domestic facilities and lower domestic prices. An upcoming turnaround at a Brazilian plant might tighten supplies in the coming week. U.S. products also continued to compete with offers for Asian exports. There have also been discussions to move U.S. products into the West Coast of South America, and several transactions were heard to be in the pipeline.

Mexican importers were on the lookout for U.S. cargoes as well, and there has been a small uptick in buying interest ahead of the Easter holiday on March 31, but buyers were hoping to be able to negotiate lower pricing. While volumes moving to Mexico have generally slipped due to stricter government rules for imports of light-viscosity grades which were previously used as fuel extenders, there were still many requirements from the lubricants segment, particularly for automotive and industrial applications. The stricter import license restrictions were not only affecting base oils moving to Mexico, but also greases, finished lubricants and other products, according to sources.

On the naphthenic base oils front, prices continued to be exposed to upward pressure due to firm crude oil and feedstock prices. Values were also propped up by a tightening supply and demand balance, especially of the light grades used for transformer oils and metalworking fluids. Steady interest to move shipments to Europe and Latin America helped keep domestic inventories from building as well. Suppliers said that they were monitoring crude oil prices and would likely consider a base oil price adjustment if futures continued to hover at the current levels for an extended period.

Cross Oil’s naphthenic base oil plant in Smackover, Arkansas, was heard to have shut down for a three-week turnaround earlier 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. The turnaround was expected to keep supplies on the tight side until the unit is restarted at the end of March and the producer is able to rebuild inventories.

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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