Producers had hoped that the summer driving season and upcoming hurricane months –

spanning from June 1 to Nov. 30 – would encourage buyers to seek additional base oil volumes, and agreed that the heightened buying activity had led to a balanced-to-tight supply scenario, particularly in the API Group I and Group II segments. These conditions partly supported recent price increase initiatives that catapulted most Group I and Group II posted prices to higher levels in April. The initiatives had been predominantly fueled by firming crude oil and feedstock prices, but improved domestic demand and brisk export activity had also provided some support.

Base oil demand was generally described as strong in April, and slightly softer in May, but still quite healthy. “April was a great month for demand. May has been good as well, but demand has been less,” a source concurred. Domestic order volumes may ebb in June, but export activity was expected to be maintained or even increase. Participants said that crude oil prices might play a role in base oil prices moving forward, but for the time being, values have been relatively stable.

Healthy consumption from industrial and marine applications had tightened API Group I availability, while requirements from the automotive segment, steady export business and a reduction of Group II output in favor of Group III grades at those refineries that are able to switch production had led to a tightening of Group II supplies as well. However, given growing margins for Group II light grades, it was heard that Group II refiners might be ramping up output.

A partial shutdown and maintenance work on the low-viscosity base oil lines at a Group II plant has been completed after a catalyst change in early May. The unit was back up and running well, allowing the producer to build inventory, according to sources. A brief turnaround at Paulsboro’s Group I unit in New Jersey earlier this month had also tightened supply in the Group I segment. Paulsboro was expected to complete the shutdown and resume production earlier this week. The company has sufficient inventory to cover requirements from domestic customers, and no orders had been impacted by the shutdown, although exports had been limited to some extent to ensure the producer has plentiful stocks through June.

An anticipated lengthening in Group III availability was likely behind Motiva’s and SK Enmove’s Group II+ and Group III posted price decreases, which went into effect on May 1. Group II+ and Group III prices were exposed to downward pressure because of heightened domestic production of these grades, along with increased availability of import cargoes from Asia and the Middle East.

The uptick in order volumes observed over the last two or three weeks was also attributed to a drive by both buyers and suppliers to build inventories ahead of possible supply disruptions caused by severe weather during the Atlantic hurricane season. In early April, weather forecasters at Colorado State University predicted an “extremely active” 2024 hurricane season given warm sea surface temperatures and less wind shear to break up storms in the summer and fall, according to media reports. On Thursday last week, the Houston, Texas, area was hit by a severe storm that caused extensive damage and power outages, but there were no reports of base oil output disruptions.

On the naphthenic base oils front, producers also communicated base oil price increases of 30 cents/gal and 35 cents/gal in April. A tightening supply and demand balance and steeper crude oil values had driven the initiatives, which were implemented between April 15 and April 22.

Leading the pack in terms of pale oil demand were the lighter grades, particularly as consumption of transformer oils remained robust, while the heavier grades have also picked up the pace. Domestic demand was heard to have increased in April, and has now steadied. Constant export business to destinations in Europe and Latin America also contributed to the snug supply scene, although transactions into Mexico have seen some fluctuations. “Mexico has been feast or famine,” a supplier noted. Other markets such as Central and South America “are booming right now.” Despite the healthy demand conditions, no supply shortages were expected as plants were generally running well.

Aside from supply and demand factors, base oil market participants kept an eye on crude oil values. Crude oil prices have been swayed by geopolitical conflicts and economic data in recent weeks, and West Texas Intermediate (WTI) futures had reached multi-month highs above $85 per barrel in early April when base oil producers had announced price increases to offset the higher production costs. However, crude oil values have fallen from those elevated levels, and were trading within a narrow range on Monday as analysts monitored developments in Iran following the death of the country’s president in a helicopter crash. Oil prices settled 1% lower on Tuesday on expectations of persistent higher interest rates in the U.S., which could thwart oil demand, and reports showing higher domestic crude inventories.

On Tuesday, May 21, West Texas Intermediate (WTI) July 2024 futures settled on the Nymex at $78.66 per barrel, compared to $78.02/bbl for June futures on May 14. 

Brent futures for July 2024 delivery were trading on the ICE at $82.36/bbl on May 21, compared to $82.86/barrel on May 14. 

Louisiana Light Sweet crude wholesale spot prices were hovering at $84.09/barrel on May 20, from $83.46/bbl on May 13, according to the Energy Information Administration.

Base oil export activity has declined slightly compared to March and April, although buying interest from Mexico has ramped up as U.S. supplies of certain grades have tightnened and buyers were worried that this would drive prices up. Group I and Group II light-viscosity grades continued to move to the neighboring country despite the stricter import rules imposed on base oils used for fuel blending.

Buying appetite persisted from other countries in Latin America, Europe, India and the Middle East, but the number of transactions concluded to Brazil and India has declined from levels seen in late 2023 and early this year as domestic production rates in those countries have improved and buyers felt confident that there would be more local product available. Even so, there was still healthy buying apetite for certain grades, such as the Group III cuts.

U.S. Group I suppliers also said that these grades may receive particular interest from buyers in Europe, as availability has tightened and prices have moved up. Some U.S. Group I cargoes had been shipped to Africa earlier in the year, but may find a home in Europe instead over the next few months.

In downstream markets, finished products manufacturers have announced price increases, hoping to offset the higher price of base oils, additives and other climbing production costs. Following the April base oil price increases, additive suppliers have announced price markups within a range of 8% to 10% for May implementation.

Back in April, Highline Warren communicated a markup of up to 10% on finished lubricants, effective May 16. Shortly after, Pinnacle Oil announced an increase on all bulk and packaged products prices of up to 12%, with an effective date of May 29. Omni Specialty Packaging announced a price increase of up to 10% on all bulk and packaged products, effective May 31. Advanced Lubrication Specialties communicated a price increase of up to 12% on all products, with an effective date of June 1. According to the company, the increase is driven by the recent hikes in raw material, production and packaging costs. Safety-Kleen also informed its customers that the company would be increasing prices on all lubricants and related products by up to 12%, effective June 17, “due to increases in the cost of raw materials.” Reliance Fluid Technologies has also announced a price increase of up to 12% on finished lubricants and packaging which will also go into effect on June 17. The company explained that the increase was necessary due to base oil and packaging increases.

Among the major lubricant manufacturers, ExxonMobil was reported to have communicated a finished lubricant price increase of up to 15%, with an effective date of May 22. There were expectations that the increases would face resistance given that a number of suppliers continued to grant special discounts to protect accounts, while competition among suppliers to maintain or gain market share was also a factor affecting pricing.

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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