Market attention shifted from the coronavirus pandemic and the presidential elections to developments related to Tropical Storms Marco and Laura, which were expected to make landfall on the United States Gulf Coast, where a large number of refineries and base oil facilities are located.
At the time of writing, Marco, which had originally been forecast to build into a hurricane, had been downgraded to a tropical depression and had made landfall near the mouth of the Mississippi River early on Monday, the National Weather Service said. Unlike Marco, which grew weaker as the day carried on, Tropical Storm Laura was gaining strength. Officials expected it to make landfall near southern Louisiana or the east Texas coastline late Wednesday as a Category 2 hurricane. For more information, see related story, “Gulf Plants Batten Down for Laura,” in this issue of Lube Report Americas.
Meanwhile, a majority of suppliers described business as fairly steady, with some segments such as the API Group I heavy-viscosity and bright stock, and Group II light-viscosity grades continuing to experience tight conditions given steady domestic demand and recent export transactions. Buying interest from India and the Middle East was expected to result in additional cargoes being shipped to those regions in September.
Buying appetite for naphthenic base oils prices from Mexico and South America was said to be strong, allowing the U.S. market to attain a balanced-to-tight position.
Sellers were concerned that the typical demand slowdown that starts in the last quarter of the year would start much earlier in 2020 due to the effects of the pandemic, and be more pronounced as well. Many downstream sectors that consume lubricants, such as the aviation industry and the passenger car segment, were struggling, despite the reopening of most businesses and the relaxation of lockdown measures in the U.S.
Lubricant consumption in other sectors, such as the heavy-duty, transportation and agricultural segments have actually strengthened over the last several months since the start of the coronavirus crisis, sources said. “We have customers who are seeing huge surges in niches that are thriving in this current environment, such as recreational vehicles, marine oils, home equipment (lawn mowers, as an example), etc.,” a supplier elaborated.
A number of suppliers reported a “really robust July.” The strong demand may have been partly driven by “a replenishment boost to fill customer tanks to normal inventory levels” after they had been depleted in previous months during the peak of the lockdowns, a source explained. August has also been relatively healthy, considering market fundamentals and the pandemic.
As a result of the upturn in demand over the last few weeks, and the fact that producers trimmed operating rates during the beginning stages of the pandemic, supply and demand were reported as fairly balanced. This condition would also limit the traditional supply overhang that builds during the fourth quarter and weighs down prices.
Still, many do not expect the recovery to lead to the same demand levels as in years past. In the best case scenario, suppliers anticipated demand to be at 90% of typical levels for the balance of the year, and a number of observers said that consumption levels would not be back to “normal” until well into 2021. “I see it getting better next year, and it’ll be almost normal by the third quarter of 2021, to where we were in 2019,” a source commented during a recent ILMA webinar.
Experts predicted that non-transport industrial demand would revive in 2021-2022 and would experience a much more gradual recovery than other segments.
In the meantime, prices on both the paraffinic and naphthenic fronts remained stable, with spot prices for paraffinic base oils moving up by 5 to 10 cents per gallon over the last couple of weeks due to healthy demand from the export side. Firm feedstock prices offered additional support to the higher indications.
Upstream, crude oil futures jumped on Monday as the storms approached the Gulf of Mexico, shutting more than half its oil production, and on optimism related to a possible coronavirus treatment after U.S. regulators approved the use of blood plasma from recovered patients.
A larger-than-expected drop in U.S. crude and gasoline stocks also boosted prices. The American Petroleum Institute reported on Tuesday a draw in crude oil inventories of 4.524 million barrels for the week ending August 21.
On Tuesday, Aug. 25, October WTI futures settled at $43.35 per barrel on the CME/Nymex. September futures had closed at $42.89/bbl on Aug. 18.
Brent futures for October delivery closed at $45.86/bbl on the CME on Aug. 25, from $45.46/bbl on Aug. 18.
Light Louisiana Sweet crude wholesale spot prices settled at $44.14/bbl on Aug. 24 and had closed at $44.44/bbl on Aug. 17, according to the Energy Information Administration.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
Posted Paraffinic Base Oil Prices
August 26, 2020
PLEASE NOTE: Avista Oil’s 145 SUS oil, which had been listed on the Group II chart, has been switched to the Group II+ chart following changes in its performance parameters. Also, the posted price of the company’s 4 cSt Group III fluid has been updated.
(Prices are FOB basis, in U.S. dollars per gallon and U.S. dollars per metric ton).
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.