With domestic demand showing few signs of improving, base oil producers in the United States have been focusing on concluding export transactions as a means to reduce inventories, but buying interest in most regions was subdued as participants preferred to end the year with lean stocks to avoid additional taxes amid uncertain prospects in downstream lubricant markets.
A majority of refineries were running at top rates and feedstocks continued to be streamed towards the production of base oils because competing fuel margins were less attractive. The high run rates might lead to an inventory build, which suppliers hoped to avoid by moving base stocks overseas. Export transactions typically mushroom in the last quarter of the year, but activity has been somewhat lackluster due to healthy inventories in other regions amid soft demand. Export spot prices were assessed as largely unchanged from the previous week.
Most base oil grades were plentiful, but the API Group I segment continued to show tight pockets as demand for certain cuts was steady and availability remained strained. Bright stock was still in the spotlight because demand for this cut has not abated, and Group I output in North America has steadily declined over the last two decades due to a rationalization of Group I facilities.
Industrialization and global trade flows have helped elevate living standards in many developing economies and bright stock remains a very much sought-after base stock globally—particularly from marine applications and process oils–commanding firm pricing. ExxonMobil plans to capitalize on the continuous demand for bright stock by producing a heavy-viscosity Group II cut at its upgraded plant in Singapore next year. This cut, known as the EHC 340 Max, has similar characteristics as a Group I bright stock but offers additional benefits such as lower multi-ring aromatics content which improves oxidation stability, according to ExxonMobil officials who spoke at the ICIS Pan American conference in New Jersey earlier this month.
The producer plans to start up its Singapore Resid Upgrade Project in 2025 and will bring 20,000 barrels per day of additional Group II base oils to the market. Production of the EHC 340 Max will be approximately 6,000 bbl/day and will be available worldwide, according to the company.
While bright stock was deemed snug in the U.S., supplies of other Group I cuts began to mount and a couple of suppliers dialed down production rates to keep inventories from building, sources noted.
The Group II cuts had also started to show some signs of lengthening in early November, but an unplanned shutdown at the Excel Paralubes Group II/Group III unit in Lake Charles, Louisiana, in November led to a temporary tightening of short-term spot supply. The producer does not comment on the status of its operations, but sources had earlier indicated that the shutdown had been related to Group III production at the plant. However, a source familiar with the plant’s operations said that the shutdown was caused by a compressor issue. The plant had undergone maintenance in early November and was restarted, but was shut down again shortly after. Observers anticipated the plant would restart later this week or early next week, but has suspended spot offers for the time being and has also been forced to cancel some export orders it had previously agreed to, according to sources. Group II grades had also seen an output reduction as a number of refiners had favored Group III production earlier this year, resulting in a lower yield.
Also within the Group II segment, there were expectations that Chevron would be building inventories to cover commitments during a scheduled maintenance outage at its Pascagoula, Mississippi, plant starting in March 2025.
In the Group III segment, prices were steady with participants noting that a more balanced supply and demand scenario had been achieved, although availabilities of the 4 cSt grade continued to outpace consumption levels and additional volumes from the Middle East and South Korea were anticipated to arrive in the U.S. in the coming weeks. A supplier with operations in the Middle East which had previously only supplied Group III cuts exclusively to a U.S. blender was heard to be actively seeking to expand its business.
Spot transactions have been less vibrant than expected because of the tighter conditions for some grades and muted demand from destinations such as Brazil, which had attracted significant U.S. base oils earlier in the year. Demand in Brazil was expected to pick up in the coming weeks as consumers will likely have used up stocks, but the local producer has also been able to offer competitive pricing and has been able to capture more orders in recent months. There were also expectations that buying interest from Colombia and Chile might show an uptick in the new year, but U.S. suppliers faced competition with Asian sellers at these destinations.
Demand for U.S. base oils in some segments of the Mexican market were said to have remained fairly robust, but there has been a slowdown in automotive lubricant consumption, leading to a reduction in base oil orders. Light grade volumes moving to the neighboring country have also declined as some of the import licenses that were granted late last year have expired and need to be renewed. In October 2023, the Mexican government had imposed a license requirement and other restrictions on U.S. base oil imports to deter the flow of light grades used as fuel extenders. Buyers were hoping to be able to secure competitively-priced U.S. material in the last two weeks of the year or early next year as producers continue to clear inventories.
In related industry news, Nissan Motor has cut production at its Mexican joint venture plant with Mercedes-Benz Group by about 50% as U.S. sales of the Japanese automaker’s Infiniti luxury cars have slumped, Nikkei Asia.com reported. The two automakers had planned to produce about 130,000 vehicles at the plant this year, but current output is around 70,000 units, with expectations that the plant will continue to produce at reduced levels in 2025. At the same time, the Japanese automaker has three other vehicle assembly plants in Mexico that are increasing production for the U.S. market.
U.S. base oil suppliers were also in negotiations to move U.S. base stocks to the Middle East and India. Once again, export business to India has been lackluster compared to the last quarter of previous years. Base oils and lubricants buying interest in India following the monsoon season was anticipated to increase, but the expected demand uptick failed to materialize partly because of adequate inventories and the availability of competitively priced local products.
Naphthenics
On the naphthenic base oils side, prices were reported as generally stable, propped by a balanced-to-tight supply scenario for the light grades. Demand for the heavy-viscosity pale oils from segments such as the tire and rubber industry has slowed down due to seasonal patterns. There were hopes that the new U.S. administration’s policies next year would support demand for drilling fluids and solvents and other applications that require naphthenic base oils in their formulations.
Downstream, finished product prices remained exposed to downward pressure due to plentiful inventories and competitive action among suppliers to protect or gain market share. Some blenders were doing their utmost to keep prices stable as they were holding pricier stocks that were produced when base oil and additive values were higher.
Crude and Diesel
Crude oil futures started the week down, following disappointing Chinese spending figures, despite Beijing’s fresh economic stimulus measures that have begun to boost manufacturing activity and refining throughput. Ongoing concern about reduced oil demand from China—the world’s top oil importer–contributed to a decision by the Organization of the Petroleum Exporting Countries and allies (OPEC+) to postpone plans to lift oil output until April.
On Tuesday, crude oil futures declined further, with West Texas Intermediate (WTI) trading below $70.00 per barrel, after news that the Mexican state-owned oil producer, Pemex, has fully resumed operations in all its platforms in the Gulf of Mexico and was not expected to suffer further weather setbacks as the hurricane season has officially ended.
On December 17, WTI January 2025 futures settled on the Nymex at $70.08 per barrel, compared to $68.59/bbl on December 10.
Brent futures for February 2025 delivery were trading on the ICE at $73.57/bbl on December 17, from $72.19/bbl on December 10.
Louisiana Light Sweet crude wholesale spot prices were hovering at $74.08/bbl on December 16, from $71.40/bbl on December 9, according to the U.S. Energy Information Administration (EIA).
Low sulfur diesel was at $2.24/gal at New York Harbor, $2.18/gal on the Gulf Coast and $2.21/gal in Los Angeles on December 16, compared to $2.16/gal, $2.09/gal and $2.10/gal, respectively, on December 9, 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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