While some segments of the base oils market saw steady demand, others experienced a slowdown, caused by the winding down of the summer season and magnified by the coronavirus pandemic’s effects.
A majority of market players agreed that the summer was far from typical, in that the uptick in demand ahead of the spring production cycle had not arrived until much later than usual, manifesting itself in June rather than in March or April. This was likely the result of a drop in base oil and lubricant consumption during the March to May period as the majority of the country was under lockdowns – which meant people were not driving, businesses were closed, and manufacturing facilities either reduced production rates or idled operations altogether.
With the easing of some of the COVID-19-related measures in late May, buyers returned to the market to replenish stocks and there was a demand revival in June and July.
However, with the surge in the number of new coronavirus cases in many parts of the country, and the uncertainty surrounding the opening of schools and businesses, buying interest for base oils and lubricants for specific segments of the market, such as automotive and industrial applications, has experienced a setback.
Several base stock suppliers expressed concern about demand levels falling off at the beginning of August, and many of these concerns deepened as orders have not shown significant improvement. However, the fact that a large number of producers continued to run facilities at reduced rates helped keep the market balanced to snug.
Certain grades, such as the API Group I high-viscosity cuts and bright stock, and the light grades within the Group II category benefitted both from healthy domestic demand and export opportunities, keeping the market fairly tight.
For a number of suppliers, August turned out to be better than expected. “Business in August has been good for us, we are on par with July,” a source noted.
Several shipments of U.S. Group I and II base oils have made their way to India, the Middle East, Africa and Latin America in recent weeks.
Group III availabilities have been managed carefully as most volumes utilized in the U.S. are imported from South Korea and Canada, so there was not a huge overhang of product.
Despite the prevailing tightness and firm feedstock costs, producers appeared very hesitant to “rock the boat” as demand remained tremulous, and have therefore avoided marking up prices, despite an initiative by ExxonMobil at the start of the month that called for a posted price increase in mid August. Only Paulsboro and Avista Oil followed with increases of their own.
There had been some skepticism that the increases would be pushed through in their entirety, and there was talk that the producers might end up rescinding the initiatives. However, from most buyer accounts, it appeared that ExxonMobil’s and Paulsboro’s increases of 15, 25 and 30 cents per gallon, and Avista’s 15 cents/gal hike have been implemented.
Regarding the ExxonMobil initiative, a source reasoned that the producer’s prices had fallen recently due to special discounts and other adjustments, and the only way to bring prices back up was to raise posted prices. Instead of lifting prices, other producers have removed all discounts and temporary voluntary allowances or value adjustments.
The possibility that producers would raise prices also prompted blenders to place orders during the first half of the month, as they hoped to beat potential markups if most producers decided to revise postings.
While some suppliers were still evaluating market conditions, others seemed to have decided to wait this round of increases out. Suppliers anticipated September demand to weaken because of a slowdown in downstream lubricant segments, and they preferred to avoid further deterrents such as a price increase.
Sources also indicated that domestic spot transactions had edged up since the beginning of the month, given current fundamentals, with the lighter grades seeing increases of 4-5 cents/gal and the heavy grades and bright stock moving up by around 5-10 cents/gal.
Prices in Mexico have increased a little in August, with most grades inching up by 5 cents/gal and and bright stock by 10 cents/gal, according to sources.
It was also heard that producer S-Oil will be taking its plant in South Korea off-line for a scheduled turnaround at the end of August, but it will only affect Group I and II production. Some of these grades are fairly tight in Asia at the moment because of reduced operating grades at most regional plants, and the outage may offer some export opportunities for U.S. producers.
On the naphthenic front, business was stable after the recent implementation of 20-25 cents/gal price increases, with a majority of suppliers reporting largely balanced supply against current demand. There was an increase in buying interest from Latin America as demand has recovered slightly, following the COVID-19 lockdowns, and this resulted in more U.S. pale oil cargoes moving to those destinations.
In other market news, there were reports that the Gulf Intercoastal Waterway, which had been closed after Hurricane Hanna in late July, was expected to reopen to barge traffic last week. Base oil suppliers had scheduled some railcar deliveries from the U.S. Gulf to Brownsville, Texas, while the waterway remained closed.
Upstream, crude oil futures rallied late in the day on Tuesday on reports of a draw in U.S. crude inventories, OPEC’s compliance with production curbs, and talk that China would be importing large volumes of U.S. crude in the next couple of months. However, there were lingering concerns about the increasing number of coronavirus cases in many parts of the world, namely the U.S., India and Brazil, which would likely impact global oil demand in August and September.
On Tuesday, Aug. 18, September WTI futures settled at $42.89 per barrel on the CME/Nymex, and had closed $41.61/bbl on Aug. 11.
Brent futures for October delivery closed at $45.46/bbl on the CME on Aug. 18, from $44.50/bbl on Aug. 11.
Light Louisiana Sweet crude wholesale spot prices settled at $44.44/bbl on Aug. 17 and had closed at $43.64/bbl on Aug. 10, according to the Energy Information Administration.
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.
Historic and current base oil pricing data are available for purchase in Excel format.