Base oil prices remained exposed to downward pressure due to lackluster demand, growing supplies, a need for suppliers to place extra barrels, and falling crude oil values. At least two base oil producers stepped out with posted price decreases this week. According to reports, ExxonMobil will be decreasing its postings on November 1 and Paulsboro will also be lowering its prices on November 6.
Market sources indicated that ExxonMobil would be lowering the posted price of its API Group I SN100, SN150 and SN330 grades by 15 cents per gallon; its Group I SN600 by 20 cents/gal; and its Group II+ grade (EHC 45) by 20 cents/gal as of November 1. The company’s Group II grade (EHC 65) and EHC 120 would remain unchanged.
Paulsboro will be decreasing its Group I SN100 and SN165 by 15 cents/gal and its SN500 and SN700 by 20 cents/gal, with an effective date of November 6.
Neither of the producers had adjusted postings back in September, when a majority of suppliers had announced posted price decreases. However, sources said that both ExxonMobil and Paulsboro had kept temporary value allowances (TVAs) commesurate to those decreases in place.
Last week, SK Enmove had also informed customers about a posted price decrease that the company implemented on October 21. SK lowered all of its Group II+ and Group III base oils by 20 cents per gallon, with the exception of the Group III 6 cSt grade, which remained unchanged. This adjustment was thought to have been implemented to bring the company’s prices more in line with other suppliers’ postings.
While the Group I grades had been fairly tight until earlier this month, this segment appeared to be lengthening. In fact, it was heard that a U.S. supplier had offered a bright stock cargo for shipment to India. This was atypical as bright stock availability had been snug and most suppliers had prioritized domestic market commitments, with at least one supplier heard to be in a sold-out position for November shipments.
Conversely, some Group II grades had been on the long side in September and early October, but that segment has shown some signs of tightening because of unplanned production issues at one plant and a turnaround at another, and increased demand from buyers who opted for acquiring Group II grades to replace Group I cuts as Group II base oils were offered at competitive prices. Extra supplies of the Group II 100 neutral grade were heard to be particularly difficult to locate, while the 220N cut was more readily available, exerting downward pressure on spot prices. A couple of Group II producers with the ability to manufacture Group III grades have also increased output of these cuts in detriment to Group II production, causing some tightening within this category of base oils.
A Group I/Group II producer was heard to have suffered an unexpected production issue which resulted in one to two weeks’ maintenance. The producer was understood to have restarted its base oils unit and was expected to meet contractual obligations, but suspend spot offers until it was able to rebuild inventories.
Chevron’s Group II/Group III turnaround in Richmond, California, was expected to be completed at the end of October, but was not anticipated to impact base oil availability significantly as the producer has likely built inventories ahead of the shutdown, although sources said they observed some market tightening of the Group III grades produced at that plant. Chevron was also understood to be planning to take its Pascagoula, Mississippi, plant offline for three weeks in the first quarter of 2025. There was no confirmation about the turnaround schedule as the producer does not comment on the status of its base oil operations.
Within the Group III segment, 4 cSt has seen oversupply conditions due to the recent arrival of Asian and Middle Eastern imports amid softer demand, but 6 cSt and 8 cSt grades were deemed adequate against current requirements. A domestic producer’s cutting back its Group III 4 cSt output to boost its Group II production was also expected to help achieve a more balanced scenario. Whether these factors would stem the downward pressure on Group III prices remained to be seen, as global supplies of Group III grades seemed to be surpassing current demand.
Buyers said that the price situation with some suppliers turned confusing because there have been posted price decreases in September, and fresh ones in early November from three suppliers, but there have also been temporary value allowances (TVAs) granted to select accounts and these appeared to be holding in some cases.
Naphthenic
Naphthenic base oil market participants agreed that the price situation was not clear-cut in that segment of the market either. A majority of naphthenic producers had decreased prices by 20 cents/gal in mid September – with the exception of San Joaquin Refining – but there were also TVAs in play. “Pricing is a mess. I can’t keep track since there are so many TVAs out there,” a source commented, adding that while there have not been any official decreases announced in October, most suppliers have tried to clear barrels by offering additional price decreases.
The pricing situation was muddled in the finished lubricants market as well. Despite efforts by some blenders to keep prices from falling given steep production costs, sellers had to acquiesce to requests for discounts in order to remain competitive and protect market share. Some finished products manufacturers also managed to secure discounts for additives, but the decreases did not apply across the board, sources said.
In terms of exports, naphthenic base oils saw steady buying interest from Latin America and Asia, and paraffinic barrels continued to move regularly to Mexico, although some buyers preferred to wait in hopes of lower U.S. pricing in the coming weeks, when suppliers who built inventories ahead of the hurricane season are likely to release them into the market at more attractive prices. Mexican buying ideas aligned with softer spot prices in the U.S., although the Group II 100N remained fairly tight and prices for this grade were steadier.
Brazil was a robust importer of U.S. base oils for most of the year, but requirements have fallen given a seasonal demand slowdown, and lower domestic pricing, which enticed buyers to procure more locally produced base oils.
Market participants were also keeping a close eye on crude oil and feedstock values as they remained unpredictable. Futures had jumped over the weekend as Israel launched attacks against missile factories and other sites in Iran. The attack was in response to an Iranian missile attack on Israel on October 1. However, oil prices fell on Monday on reports that Iranian oil and nuclear facilities were spared by Israel, lessening concerns that the conflict in the Middle East would disrupt supplies.
On Tuesday, oil prices edged lower, adding to a more than 6% drop in the previous session – the worst daily loss in two years – on a report that Israeli Prime Minister Benjamin Netanyahu appeared agreeable to a meeting to discuss a diplomatic solution to the war in Lebanon. A potential agreement lowered the risk premium on crude oil.
Crude
On October 29, WTI December 2024 futures settled on the Nymex at $67.21 per barrel, compared to $71.74/bbl for November futures on October 22.
Brent futures for December 2024 delivery were trading on the ICE at $71.50/bbl on October 29, down from $75.60/bbl on October 22.
Louisiana Light Sweet crude wholesale spot prices were hovering at $69.15/bbl on October 28, from $72.89 on October 21, according to the Energy Information Administration (EIA).
Low-sulfur diesel was at $2.14/gal at New York Harbor and at $2.06/gal on the Gulf Coast on October 28, compared to $2.17 and $2.12/gal on October 21, respectively, according to the EIA.
In other industry-related news, Hyundai Motor chief executive officer, Chang Jae-hoon, said that the South Korean company will continue to deliver competitive electric vehicles for U.S. customers even without government subsidies, vowing that the company’s strategy will not be affected by Washington’s energy policy after the presidential election on November 5, Nikkei Asia reported. The Biden administration’s Inflation Reduction Act has attracted billions of dollars of investment from Korean companies, including Hyndai. While the Democratic candidate, U.S. Vice President Kamala Harris, supports the IRA program, Republican candidate and former U.S. president Donald Trump has pledged to reverse it.
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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