Base oil suppliers had expressed some concern about the possibility that inventories would start to mount, given a seasonal demand slowdown during the lead-up to the Labor Day holiday, which signals the end of the summer. However, in an unexpected turn of events, the focus has now shifted to the likelihood that supply might tighten due to output disruptions caused by severe weather on the United States Gulf Coast.
While most domestic contract customers were not anticipated to be affected by the output disruptions, the amount of product available for spot and export transactions may be more limited, particularly for Group II grades. U.S. producers have been shipping significant volumes to India, Latin America and the Middle East over the last three months, but this activity may be reduced to a trickle given the current supply situation. For details about production issues caused by Hurricane Laura, please see related story, “Gulf Base Oil Plants Weather Laura,” in this issue of Lube Report Americas.
Market players also reported that export prices had climbed steadily since June and were anticipated to be exposed to even more upward pressure due to the scarce product availability. Values edged up from last week, with sources reporting 7 to 10 cent/gal upward adjustments week on week for Group I and Group II supplies.
Domestic demand was described as flat, although some downstream segments appeared to be absorbing more base oils than others, depending on how they have been affected by the ongoing coronavirus pandemic. The Group I grades remain tight, and demand for Group III imports appears to be holding.
Naphthenic base oil demand was also deemed steady to healthy, depending on downstream segments, and supply was balanced, although some pockets of the market have started to tighten. Export activity to Asia and South America seems to have picked up the pace, but movements to Mexico have slowed down slightly. Prices moved up in late July/early August and remain stable to firm.
The personal car and aviation segments have slowed down significantly from the same period last year, although the automotive sector saw a pickup at the start of the summer as business lockdowns were lifted, and people chose summer travel by car within the U.S. instead of vacationing abroad.
U.S. air travel has recovered modestly since April, but passenger traffic remains down by about 70% from a year ago, The New York Times reported. This has negatively affected consumption of jet fuel and aviation lubricants. Refiners and manufacturers catering to this segment have had to reduce operating rates at their facilities.
Upstream, crude oil futures climbed on Monday, with Brent reaching its highest level in over 5 months on strong crude demand from China in July and August, and a weaker dollar, which remains an incentive for other Asian importers of crude oil.
There was a further boost to prices from reports that the United Arab Emirates’ Abu Dhabi National Oil Co. said that it plans to cut crude supplies by 30% in October.
On Tuesday, Sept. 1, October WTI futures settled at $42.76 per barrel on the CME/Nymex and fhad closed at $43.35/bbl on Aug. 25.
Brent futures for November delivery closed at $45.58/bbl on the CME on Sept. 1, from $45.86/bbl for October futures on Aug. 25.
Light Louisiana Sweet crude wholesale spot prices settled at $43.86/bbl on Aug. 31 and had closed at $44.14/bbl on Aug. 24, according to the Energy Information Administration.
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.