With logistics gradually recovering after the recent hurricanes on the United States Gulf Coast, buyers and sellers turned their attention to product needs for the remainder of the year, ahead of the Independent Lubricant Manufacturers Association meeting on Oct. 9-12 in Phoenix, Arizona. Discussions there were expected to center on base oil and lubricant supply constraints, demand growth and pricing trends. Availability of most base oils and additives were not anticipated to improve significantly until 2022.
Market participants reported that rail, barge and terminal operations were running more smoothly following Hurricane Ida and Tropical Storm Nicholas, which had caused flooding at a few facilities and widespread power outages, but there were still a few problems with railcar and truck driver availability. “I have not heard of any major problems, except with getting rail cars back to reship,” a source noted, while another mentioned that rail traffic was slow and “trucks and drivers are hard to find.” This shortage has been an issue since the early days of the COVID-19 pandemic, and was exacerbated by the storms.
Supply remained tight both on the paraffinic and naphthenic side of the base oils business, which continued to support current posted prices and the recent increase for naphthenic cuts.
The heavier naphthenic viscosities were the tightest, according to sources. Naphthenic heavy-vis cuts were being used to replace bright stock and other paraffinic grades in a number of applications due to the difficulty in locating their paraffinic counterparts, and demand from the export segment has been healthy as well.
Given buoyant consumption, strained supply and firm feedstock prices, a majority of pale oil suppliers nominated price increases for September and October implementation. Cross Oil, Calumet, San Joaquin Refining, Ergon and other suppliers implemented increases of 25 cents per gallon across the board for naphthenic base oils between Sep. 21 and Oct. 1.
The snug conditions were the result of lingering production problems and recent turnarounds at naphthenic refineries, coupled with robust demand.
Cross Oil restarted its Smackover, Arkansas, naphthenic base oils plant about two weeks ago, following a minor turnaround, but a number of upcoming plant maintenance programs were expected to keep supply on the snug side.
Ergon has scheduled a planned maintenance event at its naphthenic refinery in Vicksburg, Mississippi, beginning Oct. 23. Ergon expected the plant to be down for seven to 16 days as the company implements several reliability improvements. No supply interruptions were expected for Ergon’s current ratable customers, as product inventory levels are sufficient to support sales during the planned outage, the company said. However, few extra barrels aside from those under contract were expected to be available in the market, sources said.
Calumet has slated a turnaround that will last one to two weeks at its Princeton, Louisiana, plant in early November.
Early next year, San Joaquin Refining plans to start a three-week maintenance shutdown at its plant in Bakersfield, California, on Feb. 1.
Conditions in most segments of the base oils market continued to be described as tight, with the API Group I and Group II heavy-viscosity grades proving to be the most challenging to source, and the lighter grades becoming slightly more accessible. Suppliers were still concentrating efforts on meeting contractual obligations and building inventories, which were quite lean, and this left limited supply for spot and export transactions. Nevertheless, there have been a limited number of Group II cargoes lined up for shipment to India this month.
Group III supply has also been tested in recent weeks, with buyers reporting difficulties in finding any volumes beyond those that they receive under contract.
“Group III supply feels more balanced, yet we still could sell more if we could make more,” a supplier commented. Sellers also noted that they were running low on different grades, depending on the timing of the replenishment. With demand for Group III seeing a downtrend in Asia, more product may become available for export into the U.S. in coming weeks.
The strained base oil situation, along with additive shortages caused by weather-related production problems and other issues continued to affect lubricant production, and synthetic lubricants in particular. A number of suppliers have been able to avoid major problems because they had built enough base oil inventories to run blending plants at normal rates and supply contract accounts, but many have had to decline incremental or spot business, or curtail production at their plants, according to sources.
While demand tends to slow down towards the end of the year, and stocks typically rise, there are expectations that the market will not become terribly oversupplied as several turnarounds are slated for the first half of 2022, and producers were likely to start building inventories ahead of the shutdowns.
In production news, consolidation in the industry continues, with Chevron Corp. announcing the acquisition of Finnish oil company Neste’s base oils business (for more details, see “Chevron Buys Neste Base Oil Business” in the Oct. 5 issue of Lube Report EMEA).
In downstream markets, several lubricants, greases, automotive fluids and other finished product manufacturers communicated increases between 5% and 15% for September and October implementation to offset escalating base oils, raw materials, chemicals, labor and transportation costs.
Paraffinic base oil posted prices were holding steady, but spot prices for bright stock and some of the lighter grades in the Group I and Group II segments have softened as availability has improved marginally. The decreases ranged from 5 to 20 cents/gal. Group I parcels arriving from Europe and the Baltic have been earmarked to meet fuel extender demand in Mexico, and the availability of these lower-priced cargoes have exerted downward pressure on U.S. supplies.
Producers were keeping a watchful eye on crude oil prices, which have spiked over the last couple of weeks, reducing margins and causing base oil suppliers to reevaluate current price points.
Crude oil futures hovered close to 2014 highs after the OPEC+ decided to maintain its output at planned levels, rather than produce more crude. The oil producers’ organization agreed in July to boost output by only 400,000 barrels per day each month until at least April 2022.
“Oil prices have already surged more than 50% this year, adding to inflationary pressures that crude-consuming nations such as the United States and India are concerned will derail recovery from the COVID-19 pandemic,” Reuters reported.
On Oct. 5, West Texas Intermediate (WTI) November futures settled at $78.93/barrel, from $75.29/barrel on Sep. 28 and $70.56/bbl on Sep. 21.
Brent futures for December delivery settled at $82.56/barrel on the CME on Oct. 4, compared to $79.09/bbl for November futures on Sep. 28 and $74.36/bbl on Sep. 21.
Light Louisiana Sweet crude wholesale spot prices were hovering at $79.03/barrel on Oct. 3 and had settled at $76.62/bbl on Sep. 27 and at $71.11/bbl on Sep. 20, 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.