Posted prices were stable, with no adjustments reported since May, despite the recent volatility shown by crude oil and feedstock values and slowing base stock demand associated with reduced mid-summer lubricant consumption. Producers acknowledged that the lackluster demand and softer crude oil prices had started to place downward pressure on base oil values, adding that while oil prices have fluctuated over the last few weeks, they had not yet fallen to levels that would affect refining operations significantly.

Crude

Base oil market participants kept an anxious eye on crude oil futures as prices have shown intense volatility since the beginning of the month. West Texas Intermediate futures plummeted to below $73 per barrel the first week of August as the equities market reacted to fears that the U.S. might slip into a recession, but bounced back shortly after, jumping to levels near $80/bbl.

Early this week, oil prices fell by more than $2/bbl on expectations that Israel’s acceptance of a proposal for a ceasefire deal in the Middle East would mitigate potential supply disruptions in that region, while lingering concerns about reduced oil demand from China – the world’s leading oil importer – also weighed on prices.

On August 20, WTI October 2024 futures settled on the Nymex at $74.04/bbl, compared to $78.35/bbl for September futures on August 13.

Brent futures for October 2024 delivery were trading on the ICE at $77.20/bbl on Aug. 20, compared to $80.69/bbl on August 13.

Louisiana Light Sweet crude wholesale spot prices were hovering at $77.07/bbl on Aug. 19, from $83.40/bbl on August 12, according to the U.S. Energy Information Administration.

Paraffinic

Base oil suppliers have been focusing on maintaining adequate inventories, while also fulfilling contract commitments, and many of them were not entertaining spot opportunities. Group I and Group II supplies were balanced-to-tight, with the light grades showing more limited availability than their heavier counterparts. Extra supplies of the Group II 100 neutral cut have been particularly difficult to locate, but the Group grades in general appeared to have become more abundant. Within the Group I segment, bright stock had also remained on the snug side for some time, but there were signs that demand was weakening and availability was becoming more plentiful. Supplies of other grades were expected to grow too as most refiners were favoring the production of base oils versus competing fuels because margins remained more favorable, and the wider availability has started to weigh on spot prices.

“We have received some decreases in the spot market, especially in the light-vis Group II base oil segment. We are also starting to see some decreases in the naphthenic market,” a source commented, voicing what several other buyers had indicated.

Similarly, in Group III, 6 cSt and 8 cSt grades have been tighter than 4 cSt, but the Group III cuts in general were exposed to downward price pressure as supplies have increased on ample volumes moving to the U.S. from Asia and the Middle East, together with growing domestic supply. There were expectations of increased availability of Asian cargoes as demand in that region has softened and supplies were lengthening, despite an upcoming turnaround at a Group III plant in Indonesia, starting later this month.

Some U.S. Group II producers have also increased Group III production to meet internal requirements, leaving more of the imported barrels available for spot business, and this exerted pressure on prices. According to sources, Group III spot indications for all grades had edged down by 5 cents per gallon from the previous week.

Export activity has also been less robust than earlier in the year, mainly because of reduced base oil availability in the U.S., but while interest from some countries such as Brazil and India has dwindled, it has been replaced by buying appetite from Europe, Mexico and Central and South America. Export prices were generally holding steady, according to reports.

In Brazil, requirements have been largely met through domestic Group I production, as Group II supplies are limited and there have not been many fresh import cargoes concluded ex-U.S. Gulf. Mexican buyers have also made concerted efforts to subsist on existing stocks with the intention of holding off on U.S. imports until supplies lengthen and prices soften, which is what typically happens in the U.S. in the fourth quarter of the year, unless unexpected events were to disrupt production.

In shipping circles, it was heard that 38,000 metric tons of base oils had been shipped from Ras Laffan in Qatar to Houston, Texas, in early August. A second parcel of about 32,000 tons was reportedly lifted in Al Jubail, Saudi Arabia, for delivery in the U.S. also in early August.

Naphthenic

In the naphthenic base oils camp, supply and demand were deemed balanced, with the lighter grades leaning towards the tight side because of healthy demand from the transformer oil segment. The heavier grades had enjoyed increased demand from the rubber and tire segment, but consumption levels have weakened as the summer driving season draws to an end.

There has also been continued buying interest for U.S. naphthenic oils from Europe and Latin America, helping keep domestic supplies from lengthening. While pale oil producers conceded that crude oil prices had lost some territory, they explained that the recent downward price trend had not been sustained over a long enough period, and that more downward adjustments would be needed before any base oil price revisions would be considered.

A naphthenic producer was heard to have suffered a small production hiccup, but the short outage was not expected to affect the supplier’s ability to meet obligations. The balance of the producers were running facilities at full rates as August demand was said to have been slightly stronger than anticipated.

Meanwhile, some blenders said that demand for finished products had been steady, while others reported sluggish conditions, which has undermined their intention of seeking price increases to offset base oil and additive hikes implemented earlier in the year. Margins have fallen, but competitive movements by major producers and some independent suppliers appeared to have largely thwarted upward price adjustments on finished products for the time being.

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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