According to base oil suppliers, the implementation of posted price increases appeared to have inhibited orders to a certain extent, as buyers were more inclined to acquire only those volumes that were strictly necessary to keep operations running and preferred to keep lean inventories.
With downstream spring lubricant demand still not as buoyant as expected, and base oil prices on an upward trend, blenders remained more cautious in terms of purchased quantities.
A majority of base oil producers and rerefiners have communicated posted price increases since the beginning of the month. The initiatives lifted API Group I, Group II and Group II+ prices by 30, 35 and 40 cents per gallon, depending on the grade and the suppliers, with effective dates peppered between April 11 and April 19.
This week, it was heard that Excel Paralubes had also communicated a 35 cents/gal increase on its Group II grades, with the exception of the 70 neutral, with the increases going into effect on April 18.
“Base oil demand picked up before the increases went into effect, but then stayed fairly flat,” a source conceded. Discussions during the ILMA meeting in California earlier this month also seemed to center on the fact that base oil demand has increased since the beginning of the year, but it was still much lower than at the same time in previous years, with the exception of 2023.
The April initiatives came on the back of a previous round of increases that were implemented between March 15 and April 1. The adjustments were prompted by firmer crude oil and feedstock prices and improving demand ahead of the summer driving season – which unofficially starts on Memorial Day on May 27 in the United States. The typical increase in automotive oil changes and other car maintenance activity leads to a boost in demand for lubricants and greases.
At the same time, the relentless climb in crude oil and gasoline prices may discourage parts of the population from driving long distances. Brent crude futures, for example, have climbed 18% in 2024 to exceed $90 a barrel for the first time since October.
The ongoing Russian war on Ukraine and attacks on energy infrastructure, conflicts in the Middle East, and strong consumer demand have propelled oil prices to their highest level in months, setting the stage for what could be a summer surge in gas prices.
Crude oil futures had lost some ground in the previous week, but strengthened on Tuesday following encouraging economic data out of the European Union, led by robust recovery in the bloc’s service industry. Investors also considered the potential effect of any fresh U.S. sanctions on Iran’s oil exports as tensions remained high in the Middle East. However, Iran said it would not escalate conflict with Israel, while traders interpreted slowing manufacturing activity in the U.S. as support for a potential decision by the Federal Reserve to cut interest rates later this year.
On Tuesday, April 23, West Texas Intermediate June 2024 futures settled on the Nymex at $83.36 per barrel, compared to $85.36/bbl for the May contract on April 16.
Brent futures for June 2024 delivery were trading on the ICE at $88.51 on April 23, compared to $89.77/barrel on April 16.
Louisiana Light Sweet crude wholesale spot prices were hovering at $87.12/barrel on April 22, from $89.11/bbl on April 15, according to the Energy Information Administration.
On the naphthenic base oils front, Calumet, Ergon, Process Oils (an affiliate of Ergon which markets Cross Oil products) and San Joaquin Refining also raised naphthenic base oil prices by 30 cents/gal and 35 cents/gal, between April 15 and April 22, driven by similar fundamentals to those observed on the paraffinic side.
Some of the naphthenic adjustments received additional support from a tight supply and demand balance, especially of the light grades used for transformer oils and metalworking fluids, driven by healthy demand and recent output reductions due to recent plant turnarounds. Demand for the heavy-viscosity grades from the rubber and tire segments has also ramped up ahead of the summer driving season.
Lubricant blenders and finished products manufacturers tried to resist the base oil price increases because of lackluster downstream demand and ongoing competitive pricing activity as suppliers strove to protect or gain market share. There was talk about temporary value allowances being granted to some base oil accounts, but how widely this was implemented could not be confirmed. Some lubricant manufacturers were hoping to postpone the implementation of base oil increase until lubricant price increases could be pushed through. Lubricant manufacturers were hoping to raise finished product prices to be able to offset the steeper base oil values in May. Additive suppliers were also heard to be planning to increase prices by 8% to 10% next month. Major blenders have started to join those independent suppliers who had originally nominated price increases, and this seemed to offer further support to the initiatives. Highline Warren was one of the first suppliers to step out with an increase announcement for late April, but it appears the supplier rescinded or delayed that first initiative and has now announced a markup of up to 10% on finished lubricants, effective May 16. According to reports, ExxonMobil also announced a finished lubricant price increase of up to 15%, with an effective date of May 22.
On the base oils export front, Group I and Group II prices remained exposed to upward pressure due to tighter supplies and increased posted prices, along with higher crude oil and feedstock costs. Refiners continued to favor base oil output versus diesel because of more attractive margins, reducing the likelihood of any base oil shortages. Spot prices for Group I and Group II grades were heard to have climbed by 5 cents/gal week-on-week.
There was ongoing buying interest in Mexico, and discussions about U.S. cargoes moving to South America, Europe and India were also taking place during the week. An 8,000-ton parcel was expected to be shipped from Lake Charles, Louisiana, to Klaipeda, Lithuania, in the second half of April. About 7,500 tons made up of three base oil grades were also mentioned for possible shipment from the U.S. Gulf to Buenos Aires, Argentina, in late April to early May.
There have also been competitive offers of Northeast Asian products to be shipped to the Americas, with a 7,000-metric ton cargo quoted for loading in South Korea to La Plata, Argentina, in late May or early June. A 5,000-ton lot was also on the table for shipment from Pyongtaek, South Korea, to the U.S. Gulf in late April.
Buying appetite for imports in Brazil was expected to pick up as lubricant activity typically increases in May and June. However, a key domestic producer has lowered prices consecutively each month since the beginning of the year, making prices more competitive against imports, and many buyers therefore relied on local production.
Mexican buyers continued to look for U.S. base oil cargoes. Offer levels were heard to have climbed on the back of domestic posted price increases in the U.S., but there were many cargoes at the border and some buyers expected this situation to exert downward pressure on import prices. While the Mexican government has imposed restrictions on light-vis imports used as fuel extenders, market participants said that more volumes of light-vis oils had started to move into Mexico in recent weeks.
Aside from plentiful Group II supplies in the U.S., Group III availability was also described as slightly long. Supplies were expected to grow as a South Korean producer was about to complete a turnaround at its plant in South Korea and additional Middle East cargoes were expected to be shipped to the Americas because demand and prices at other destinations have weakened. This situation was exacerbated given the fact that domestic suppliers with the ability to adjust output levels have increased the production of Group III grades versus Group II given more favorable margins and the abundance of Group II avails. Rerefined products were also heard to be gaining market share.
Group III spot prices continued to be exposed to downward pressure due to global oversupply conditions, with spot indications edging down by 10 cents/gal to 15 cents/gal from the previous week, depending on the grade, while Group III producers lamented the fact that production costs have escalated because of climbing crude oil prices and steeper freight rates on the back of logistical disruptions in the Suez Canal and Panama Canal.
SK Enmove’s Group III base oil plant in Ulsan, South Korea, has been undergoing routine maintenance from mid March, but was expected to be restarted by week’s end. The turnaround has likely tightened short-term inventory, but the producer was expected to meet contract commitments as it had built inventories ahead of the turnaround and its plants in other countries were also supporting supply. SK Enmove also plans to shut down its plant in Dumai, Indonesia, for a month-long turnaround in May, while a turnaround will also be undertaken at the company’s plant in Cartagena, Spain, during the second half of the year. These downtimes should help keep the company’s system-wide inventories balanced against demand.
Another South Korean Group III producer, S-Oil, has scheduled a turnaround at its Onsan plant in September and October.
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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