Conflicting currents roiled the United States base oils market, as healthy demand and limited availability in some segments exerted upward pressure, while lengthening supply in other sectors along with lower crude oil values had a softening influence on pricing. However, the tide might turn as crude values surged early in the week and base oil supply might tighten on upcoming plant turnarounds.
Buyers and sellers reiterated that supply in the API Group I segment remained strained and most producers were sold out, with little to no spot volumes to offer into the domestic or export markets. A supplier said that it was managing inventories very carefully and presenting offers from week to week, but that there were times when two weeks would go by without the possibility of bringing any additional product to the market.
Get alerts when new Sustainability Blog articles are available.
As a result, there was a limited amount of base stocks being offered into Mexico, which is typically an assiduous buyer of U.S. Group I grades. Most of the buying interest currently focused on the mid- and heavy viscosity grades, as they were more difficult to get a hold of. Some of the light grades were being used as a fuel extender, but there were also requirements from the motor oil market. However, base oil demand in Mexico was affected by the coronavirus pandemic, and car manufacturing in particular was impacted by the lack of electronic chips.
There have been several Group II light-vis cargoes booked from South Korea and the Baltics that were filling the supply gap for these cuts. A U.S. producer had also offered light-vis parcels into Mexico as it had been unable to finalize transactions into India, according to sources. While prices for the heavy grades remained firm, there was downward pressure on the light-vis grades as they were more available, sources commented.
As has been the case for most of the year, bright stock was the dark horse because demand for this grade was supposed to be tapering off over time, however, consumption levels have surprisingly not let up and supply was still tight. At least one producer expected the situation to remain the same through the end of the year. The supplier was able to meet its contractual obligations, but had no extra volumes to offer for spot business. Another producer was heard to be in a similar position, focusing on its customers’ product needs, but not being able to participate in the spot market. A small bright stock cargo was heard to have been discussed for shipment to the U.S., reportedly from Singapore or Japan, and some of this material could then move on to Mexico, according to sources.
A similar scene to the one observed in the Group I segment was prevalent in the Group II category, with the light-vis grades thought to be more plentiful than the mid- and heavy-viscosity cuts such as the 220N and 600N. “Some Group II is becoming more available but, still not noteworthy,” a source commented. A couple of producers had shipped extra availability of light grades to India and other destinations, but buying appetite in Asia was partly tempered by steep offer prices and the flare-up of the Delta variant in many countries.
A number of cargoes were expected to move from Asia and Europe to the Americas to meet requirements that had not been fulfilled due to the tight supply situation in the U.S. A base oils cargo was discussed for shipment from Kaliningrad, Russia, to the U.S. Gulf in late August. A 3,000-4,000-metric ton cargo was expected to be lifted in South Korea for Brazil in September, while a second 9,000-metric ton cargo was on the table from South Korea to the Caribbean for first half September shipment. At the same time, it remained to be seen whether these shipments would continue to be concluded at current price levels, as buyers have become increasingly wary of high prices and softer numbers have started to emerge. There were logistical issues to overcome as well, given steep freight rates, port congestion – particularly on the U.S. West Coast – and lack of vessel space.
The Group III segment was also displaying snug conditions, as several cuts were used as a substitute for Group II grades that were less readily available. The 4 centiStoke grade in particular was in short supply, with no spot availability to speak of, and as a result, prices remained firm. Some blenders have trimmed output of synthetic oils due to the shortages. Given that some lubricant plant operators have cut back rates or implemented temporary shutdowns, demand for the 4 cSt cut may soften in the coming weeks, although recent turnarounds at Group III plants in Asia and Europe were still limiting availability.
Naphthenic base oils also showed steady demand against limited supply, supporting current price indications. Demand from Latin America, Europe and Asia was strong, absorbing any extra material coming to the market in the U.S. Spot supply of the heavy oils such as the pale 500, 750 and 2000 was very lean.
A minor turnaround at Cross Oil‘s Smackover, Arkansas, base oil plant starting on September 13 might tighten availability of pale oils further. The maintenance will last approximately 12 days and will involve a catalyst change. The unit can produce 5,000 barrels per day of naphthenic base oils, according to Lubes’n’Greases Guide to Global Base Oil Refining.
There were also reports that a paraffinic refinery on the U.S. Gulf Coast would be undergoing a turnaround during the last quarter of 2021 or first quarter of 2022, while a rerefiner was heard to be experiencing some production hiccups.
Activity in the U.S. was anticipated to be slightly muted ahead of the Labor Day holiday on Sept. 6 and because of the increase in infections from the Delta variant, which has resulted in shutdowns at offices, manufacturing plants and other businesses. Several U.S. companies have started to require employees to receive COVID 19 vaccination so as to curtail the spread of the disease.
Nevertheless, base oil demand also tends to pick up in the fall before it tapers off ahead of the year-end holidays. “September through November have been historically fairly strong due to oil changes as winter approaches,” a source explained.
Disruptions to the supply chain caused by a lack of trucks and truck drivers in the U.S., containers and packaging, additives and other raw materials were also impacting manufacturing operations. Some of these disruptions stemmed from port closures and lockdowns at faraway sources such as China and Taiwan, among others, and freight rates have also shot up. The cost per container, for example, has increased tenfold, participants said.
The uncertainties regarding the market performance in coming weeks influenced buying interest for base oils and lubricants. “I think some customers are holding back ordering,” a supplier noted. Another player agreed, adding that while supply of certain raw materials had improved for a while, there were intermittent shortages of additives and other components which were affecting industrial output.
There was talk that a turnaround at a major additives plant may impact additive availability in the last quarter, with customers likely to be put on allocation, although the shutdown plans could not be confirmed with the producer directly by press time.
At the same time, lubricants, greases and other finished product manufacturers were still feeling the pressure from higher base oil and other raw material costs, given the recent rounds of posted price increases. Some of these manufacturers and blenders have announced fresh price markups to be implemented in September.
Upstream, crude oil prices jumped early on Monday, ending the longest losing streak since 2019, on a weaker U.S. dollar and news that China had brought COVID cases back under control and was relaxing restrictions after a month of stringent curbs on the population’s mobility. This may lead to heightened oil demand. Oil prices extended Monday’s gains into Tuesday following a major outage in Mexico caused by a fatal fire at an offshore platform operated by Pemex, reducing the country’s total output by 25 percent.
West Texas Intermediate (WTI) October futures settled at $67.54/barrel on August 2, from $66.59/bbl for September futures on Aug. 17.
Brent futures for October delivery settled at $71.05/bbl on the CME on Aug. 24, from $69.03/bbl on Aug. 10.
Light Louisiana Sweet crude wholesale spot prices were hovering at $66.45/bbl on Aug. 23, from $68.14/bbl on Aug. 16, 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.