One of the interesting aspects that base oil rerefiners alluded to was that used oil collection rates have been very strong, with rerefining facilities being run at full rates and operators still finding it difficult to keep up with the huge amount of used oil received. “It is difficult to explain where all of this used oil is coming from if lubricant demand has been down,” a source commented, while some participants conjectured that it was perhaps due to some rerefineries currently being shut down for maintenance.

The various base oil segments reported differing conditions, with availabilities of the API Group I grades described as balanced to slightly long against demand. Supply was tighter in November, but it has started to grow and at least a couple of refiners were heard to have adjusted down operating rates to avoid oversupply conditions.

Group II grades experienced some lengthening since mid-November, but short-term spot availability has been partly curtailed by an extended shutdown at the Excel Paralubes Group II/III plant in Lake Charles, Louisiana. The producer does not comment on the status of its operations, but sources indicated that the outage was related to Group III production at the Group II unit. The plant underwent maintenance and was restarted, but was shut down again shortly after. The producer was anticipated to restart the base oils plant this week, but it has suspended spot offers for the time being, sources added.

Chevron was also preparing to shut down its Group II plant in Pascagoula, Mississippi, in the first quarter and was expected to build inventories to cover requirements during the outage, possibly causing some tightening of Group II spot supplies. There was no direct confirmation about the turnaround from the producer.

Meanwhile, Group III supplies were ample and were expected to remain plentiful, thanks to domestic production of Group III grades and imports from the Middle East and South Korea. The 4 cSt grade was described as the most widely available, but supplies of 6 cSt and 8 cSt have lengthened too as demand subsides ahead of the year-end.

With domestic demand not expected to improve significantly until February or March, most suppliers were focusing on export opportunities to find a home for their extra barrels. Spot export prices have moved down to entice buyers. A couple of bright stock cargoes were heard to have been sold to Nigeria and Brazil, and there were expectations that Brazilian demand would pick up at the start of 2025 because stocks were anticipated to be depleted. At the same time, attractive domestic prices and increased output at local facilities in Brazil might stymie some of the buying interest for imports. Nascent demand in Colombia for small cargoes might also draw some U.S. barrels to the West Coast of South America.

Demand in Mexico remained lackluster, but U.S. suppliers were heard to be in negotiations with buyers and distributors for Group I and Group II shipments this month. Volumes moving to Mexico have decreased due to the need by buyers and suppliers alike to reduce inventories for tax purposes before the end of the year. Additionally, sources said that some of the import licenses that were granted late last year have expired and need to be renewed. In October 2023, the Mexican government imposed a license requirement and other restrictions on U.S. base oil imports to stop the flow of light grades used as fuel extenders. Some participants said that the restrictions had not been effective, while others commented that they had reduced the volumes moving to the neighboring country.

Suppliers were also hoping to conclude business into the Middle East and India, given that many U.S. Group II cargoes make their way to these destinations during the last months of the year, when U.S. producers try to find a home for their extra volumes. However, this year, there have been fewer reports of concluded deals into India than at the same time last year. As mentioned last week, a 5,000-metric-ton cargo was discussed for shipment from Pascagoula, Mississippi, to Mumbai and/or Hamriyah, United Arab Emirates, between December 3 and 15.

On the naphthenic base oils front, prices were stable, supported by a balanced-to-tight supply scenario for the light grades, and fairly favorable conditions in the heavy-viscosity segment, even though demand for these grades has slowed down due to seasonal patterns. Keen buying interest from Latin America allowed suppliers to keep inventories in balance.

There was little talk about price adjustments because suppliers appeared comfortable in their current positions and did not believe lower prices would lead to increased buying interest. “I don’t think a decrease would prompt any additional sales. It is kind of pointless,” a participant explained.

Market participants were also hoping that some of the new administration’s policies next year would encourage demand for drilling fluids and solvents and other applications that require naphthenic base oils in their formulations.

Most refineries were running at full rates and base oil output was generally favored over competing diesel given more advantageous margins. At the same time, this situation might lead to higher inventories, which suppliers hoped to be able to reduce through export business.

Generally subdued market conditions have also triggered competitive action on the finished lubricants side, with manufacturers adjusting prices down to protect or increase market share.

Crude and Diesel

Crude oil prices were under pressure despite geopolitical risk. The failed impeachment of South Korea’s president and the collapse of the French government last week were the latest developments that increased the litany of ongoing international conflicts, but also boosted the U.S. dollar.

“Expectations for a weaker dollar in 2025-2026 are being gradually reconsidered as Donald Trump’s re-election and the prospect of stronger-than-expected U.S. economic performance improved the outlook of the greenback,” OilPrice reported.

Concerns about global oil demand lingered, with OPEC+ extending its oil production cuts to April from January amid geopolitical uncertainty. At the same time, there was some optimism about oil demand in China, following reports about a stimulus package that the government in Beijing plans to implement next year.

On Tuesday, crude oil futures were lower on the back of an American Petroleum Institute report that reflected a surprise build in U.S. oil inventories last week.

On December 10, West Texas Intermediate January 2025 futures settled on the Nymex at $68.59 per barrel, compared with $69.94/bbl on December 3.

Brent futures for February 2025 delivery were trading on the ICE at $72.19/bbl on December 10, from $73.51/bbl on December 3.

Louisiana Light Sweet crude wholesale spot prices were hovering at $71.40/bbl on December 9, from $72.30/bbl on December 3, according to the U.S. Energy Information Administration.

Low sulfur diesel was at $2.16/gal at New York Harbor, $2.09 per gallon on the Gulf Coast and $2.10/gal in Los Angeles on December 9, compared with $2.18/gal, $2.14/gal and $2.24/gal, respectively, on December 3, according to the EIA.

Contact Gabriela Wheeler directly at gabriela@LubesnGreases.com

Lubes’n’Greases Publications shall not be liable for commercial decisions based on this report.

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