The approach of the storm pushed crude oil prices up briefly after a week of heavy losses. Oil futures rose about 1% on Monday on concerns that Francine could turn into a hurricane and would disrupt production and refining along the U.S. Gulf Coast. Last Friday, West Texas Intermediate (WTI) settled at its lowest price since June 2023, and diesel and U.S. gasoline futures closed at their lowest levels since 2021, Reuters reported.

Crude oil futures tumbled again on Tuesday, closing at their lowest level since December 2021, on analysts starting a sell-off after OPEC+ lowered its demand forecast for the second time in two months. Expectations of lackluster oil demand from China – the world’s largest crude importer – also weighed on prices.

On Tuesday, WTI October 2024 futures settled on the Nymex at $65.75 per barrel, compared to $70.34/bbl on September 3.

Brent futures for November 2024 delivery were trading on the ICE at $69.56/bbl on September 10, compared to $73.75/bbl on September 3.

Louisiana Light Sweet crude wholesale spot prices were hovering at $71.65/bbl on September 9, from $76.42/bbl on August 30, according to the U.S. Energy Information Administration (EIA). (There was no trading on September 2 due to the U.S. Labor Day holiday).

Falling crude oil prices were partly blamed for a string of posted base oil price decreases that had emerged last week, with several producers announcing downward adjustments on their API Group II, Group II+ and Group III base oils. Aside from lower crude oil and feedstock prices, the decreases were also thought to have been prompted by slowing demand, healthy inventories, and a series of temporary value allowances (TVAs) granted by a number of suppliers during contract negotiations. No decreases have been implemented on Group I grades so far, likely because supply of these cuts were deemed on the tight side.

This week, it was heard that Petro-Canada had joined the ranks of other producers implementing decreases, lowering the posted price of its Group II 70N by 30 cents per gallon, 100N by 18 cents/gal and 200N, 300N and 600N grades by 40 cents/gal. The producer’s Group II+ 65N was lowered by 15 cents/gal and 100N by 25 cents/gal. Petro-Canada also reduced the postings of its Group III 4 cSt grade by 25 cents/gal and 6 cSt and 8 cSt grades by 15 cents/gal, all with an effective date of September 6.

ExxonMobil was reported to have lowered its posted prices with an effective date of September 7. The company’s Group II EHC 65 grade edged down by 40 cents/gal, while its Group II+ EHC 45 grade moved down by 20 cents/gal. Just like the balance of the Group I producers, ExxonMobil did not adjust its Group I grades.

Rerefiner Safety-Kleen also announced a decrease of 20 cents/gal on the company’s Group II+ RHT120 and of 40 cents/gal on Group II+ RHT240, effective September 10.

In the previous week, several paraffinic producers had informed their customers about their intentions of lowering posted prices. Motiva, Chevron, Excel Paralubes and Calumet all communicated Group II posted price decreases of 18 cents/gal, 20 cents/gal, 30 cents/gal, 40 cents/gal and 50 cents/gal, depending on the grade and the supplier, with the heavier grades generally showing the larger decreases.

Motiva also lowered its Group II+ 2 and 3 cSt grades by 15 cents/gal, Group III 4 cSt grade by 25 cents/gal and Group III 6 cSt and 8 cSt grades by 15 cents/gal.

SK Enmove reduced the posted price of its Group III 4 cSt grade by 10 cents/gal and Group III 8 cSt grade by 18 cents/gal, while the company’s Group II+ base oils and Group III 6 cSt grade were not changed. 

It remained to be seen whether the tropical storm that was threatening to bring strong winds, heavy rain and flooding to the main base oil production region in the U.S. would cause any production outages, and whether these disruptions might tilt the supply and demand balance towards the tight side. For the time being, the Group I grades were deemed snug, particularly bright stock, supporting steady pricing. Within the Group II segment, the light viscosity grades were less readily available than their heavier counterparts, and this had led to not only posted price decreases, but also lower spot prices. Group II spot indications were heard to have slipped by a few pennies per gallon to 10 cents/gal week on week.

The Group II segment experienced a temporary tightening following an unplanned outage at a Group II plant last month, but production had resumed shortly after and no shortages ensued. A scheduled turnaround at a Group II and Group III unit in October could result in reduced availability of these grades.

Surprisingly, the Group III grades were holding their ground after slipping for several consecutive weeks as conditions seemed better balanced and there has been a pick-up in orders, likely caused by a narrow price difference with Group II values. This incentivized some blenders to replace Group II grades with Group III cuts whenever possible.

Naphthenics

On the naphthenic base oils front, prices were reported as largely steady, supported by a balanced-to-tight supply and demand ratio. Naphthenic base oil suppliers explained that pale oil values were less likely to be adjusted as prices have been comparatively lower than paraffinic values, and demand has held up better as well, although the heavier viscosity grades have seen reduced consumption from the tire and rubber industries due to the end of the summer driving season. Participants also mentioned that a number of naphthenic base oil contracts that are tied to a diesel index may have seen downward adjustments given lower diesel values.

On the export front, both U.S. paraffinic and naphthenic cargoes have been enjoying healthy attention from Europe and Latin America. Mexican buyers have been actively seeking Group I and Group II volumes and were hoping to attain lower prices given the sliding posted prices in the domestic U.S. market, but suppliers were reluctant to reduce their offers as there was not a significant supply overhang for most grades.

At the same time, there have been discussions to move various products to the Americas from Asia, where supply has lengthened and prices have turned competitive. It was not clear whether some of the shipments that were being discussed were term cargoes, but a 4,000-metric-ton parcel was quoted for shipment from Singapore to Houston, Texas, in September. A 3,000-5,000-ton cargo was also mentioned for possible shipment from Ulsan, South Korea, to Houston or Port Allen, Louisiana, in late September/early October.

Downstream, there were reports that finished lubricant manufacturers were facing increasing pressure from buyers who were vying for lower values given the posted base oil price decreases that were implemented over the last couple of weeks. However, suppliers were resistant to granting general decreases as production costs were still high and the base oil price decreases have not made their way through the supply chain yet. Additionally, some blenders had already granted discounts in recent months given competitive activity among suppliers and a need to protect market share, and hoped to be able to keep values from falling further.

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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