Damage caused by Hurricane Beryl was less severe than expected, although there were numerous fatalities and many homes and businesses were without power amid intense heat in the storm’s aftermath. Most base oil facilities located along the storm’s predicted path implemented hurricane preparedness plans and were able to resume normal operations once the storm had left the area.
Port and terminal operations in Houston, Texas, were also without electricity, as were surrounding areas during and after the hurricane. At least one bulk liquids terminal in Houston, BWC Terminals, declared force majeure due to a lack of power on July 9. Market sources said that only about half of the terminal (No. 2) was operational this week, while the rest of the facilities were still off line.
Some suppliers noted that they had completed a few shipments through New Orleans, Louisiana, and other alternate ports as the Houston terminals they normally utilize had no electric power. Many employees in and around Houston were unable to return to their offices given a lack of power until early this week.
Some refineries and petrochemical complexes had either reduced run rates, or shut down operations ahead of the hurricane, and a few were unable to restart immediately after the storm. On July 10, Olin Corporation announced a temporary disruption of operations at its Freeport, Texas, facility and declared a system-wide force majeure for its chlor-alkali products and vinyls division, as well as on aromatics shipments.
“This disruption is a result of hurricane-related damage to Olin facilities in Freeport, impacting Olin’s normal production and logistics capabilities including access to power, raw materials, and other essential feedstocks and services. […] The duration of this disruption is uncertain,” the company said in a press release last week. It could not be confirmed whether Olin’s operations had been restarted by the time of publishing.
A number of lubricant and base oil facilities were heard to have suffered some flooding due to torrential rains and strong winds from Hurricane Beryl, but sources said that most facilities had been cleared and operations restarted soon afterward.
Producers were not only dealing with hurricane-related disruptions, but the extreme heat experienced in the days after the storm was also forcing them to run plants at reduced rates.
The Group I and Group II base oils had already been snug before Beryl, and many feared that weather-related disruptions would tighten supplies further. While a few buyers expected slight delays in shipments, there was little discussion about product shortages. Consumers’ and producers’ impetus to bolster inventories ahead of the hurricane season will likely pay off in the coming weeks, should suppliers have difficulties or delays shipping out cargoes. These inventory building efforts also led to a much leaner supply overhang of most grades.
Recent turnarounds also contributed to a tighter supply and demand scenario, but the restart of the Excel Paralubes plant should help boost API Group II spot availability. Excel Paralubes took its Group II plant in Lake Charles, Louisiana, off-line for maintenance in mid-June and was heard to have restarted operations in early July. Sources said that the plant was running normally, and that the producer had restricted spot business, but had fulfilled all contractual obligations.
“Excel Paralubes was able to ship all the product we required this month,” a source confirmed.
Buying appetite for US export cargoes of Group I and Group II base oils from Mexico, West Coast South America, Brazil and to a certain extent Europe, was still robust, but a lack of readily available cargoes at acceptable price levels hampered the conclusion of a few transactions. Higher freight rates following shipping disruptions in the Red Sea also posed challenges.
Still, Mexican buyers appeared eager to secure product in case of potential weather-related supply disruptions in the near future, and acquiesced to current prices, according to sources. Availability at Brownsville, Texas, has decreased from abundant levels seen earlier in the year, placing pressure on the few available cargoes. Except for perhaps two or three distributors who are still working on Mexican import licenses, it was heard that most business was being completed without too many hiccups since the Mexican government imposed stricter import rules on base oils and other refined products last October. Participants were also anxiously waiting to see what economic policies the newly elected Mexican president, Claudia Sheinbaum, would be implementing after she starts her six-year term on October 1.
Brazil has been buying fewer U.S. cargoes as availability at origin has been less abundant and prices have gone up, but reduced supply at home led many buyers to seek import opportunities.
Group III supplies, both imported and produced locally, were deemed adequate to meet current demand in the US, while the delay of a shipment of Middle East products was expected to cause a temporary tightening of the 6 cSt and 8 cSt grades this month, leading to higher spot price indications from some suppliers. Nevertheless, participants said that global Group III supplies were growing and this could eventually impact prices in all regions.
On the naphthenic base oils front, a balanced-to-tight supply and demand ratio continued to support the light viscosity grades, which enjoyed healthy consumption in the transformer oil and other segments. Export transactions to Europe, Asia and Latin America helped keep the domestic market in balance, despite the fact that the heavier grades were slightly longer. Prices received support from the feedstocks side, with crude oil having climbed significantly since late May.
However, a sharp downward adjustment in crude oil futures made analysts sit up and take notice this week. Prices were under pressure due to growing oil output, especially in the US, and signs that China’s economy is not as strong as expected, which could lead to reduced demand from the world’s second largest oil consumer.
Oil prices settled more than 1% lower on Tuesday – the third straight day of losses – although the downward trend was halted by expectations that the US Federal Reserve could begin lowering its interest rates as soon as September.
On July 16, West Texas Intermediate August 2024 futures settled on the Nymex at $80.76 per barrel, compared to $81.41/bbl on July 9.
Brent futures for September 2024 delivery were trading on the ICE at $83.73/bbl on July 16, compared with $84.66/bbl on July 9.
Louisiana Light Sweet Crude wholesale spot prices were hovering at $85.92/bbl on July 15, from $86.23/bbl on July 8, according to the US Energy Information Administration.
On the finished lubricants front, manufacturers were dealing with dwindling demand for finished products and price competition. “Demand is depressed,” an independent lubricant manufacturer said, adding that lubricant suppliers had tried to implement price increases in May and June to offset March and April base oil increases, but had retracted their announcements because major suppliers were offering rollover prices or discounts instead of price hikes.
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.
Archived base oil price reports can be found through this link: https://www.lubesngreases.com/category/base-stocks/other/base-oil-pricing-report/
Historic and current base oil pricing data are available for purchase in Excel format.