Base Stocks

Podcast 12: Strange Base Oil Markets in 2023


Podcast 12: Strange Base Oil Markets in 2023

The first six months of 2023 have been “strange” in global base oil markets, says our base oil editor Gabriela Wheeler. Demand for finished lubricants failed to take off in February and March in the United States, while the market was robust in Asia.

As prices for base oils fell rather than increased ahead of the usual run up to summer, sales of greases and lubricants rose for some automotive retail chains by 17%.

This half year has been made topsy-turvy by the ongoing Russian invasion of Ukraine, the lingering effects of the pandemic and blenders’ well-padded inventories. “It’s been difficult to explain why demand has been off this year. There’s a lot of speculation … concerns about recession and inflation,” said Gabriela.


TS: Hello, this is Tim Sullivan. Welcome to the Lubes’n’Greases Podcast. Today I’m talking to Gabriela Wheeler, who is our editor for base oils. Gabriela, welcome. 

GW: Hi, Tim. It’s great to be here. 

TS: Today we’re going to be talking about base oil markets around the world and doing a little bit of a recap for what the first half of 2023 is been like, Gabrielae, how would you say the markets have been so far this year? 

GW: I would say it’s been an unusual year. And I know this sounds kind of strange after the the years we’ve had during the pandemic, which was really unusual. But this year has been strange in other ways. Probably, I would say, because of supply and demand factors and pricing. 

TS: My sense is that it’s been a disappointing year, at least in terms of demand. 

GW: Yes, I would say that applies to the US market in particular. We typically see demand take off in February or March, when blenders start padding their inventories to be able to produce finished lubricants for the summer driving season. And this year, demand was quite disappointing. It was way below years past for base oils. 

TS: So that differs a bit from how things have gone in other parts of the world?

GW: Yes, I would say so because at least in Asia, we saw fairly good demand throughout the first few months of the year, I would say until about May or June, the demand in most most of Asia was fairly robust. And the two key markets India and China had fairly steady consumption about that has changed now as well. 

TS: You mean Demand has dropped off in those areas? 

GW: That’s correct. Yes. But that’s kind of that’s an unexpected phenomenon in India, because most buyers in India try to get their base oil supplies before the monsoon season starts. The monsoon rains really make it difficult in terms of logistics and transportation, because of flooding and other problems. And so most producers like to have their inventories already before this starts. And the monsoon season typically runs from June until September.

TS: So if demand is dropping off in that part of the world, that’s just a normal seasonal cyclical thing. 

GW: Yes, that’s correct. And in the US, at this time of the year, let’s say mid summer, you also see a little bit of a slowdown, because most buyers of lubricants, and for of base oils would have already stocked up on products. And, you know, they they are selling during the driving season in the summer. But this year, even before that, demand was fairly, I would say lackluster. It wasn’t terrible. There was demand, obviously. But it was not what everybody was expecting. 

TS: Can you talk a little bit about how things went with prices during the first half? 

GW: Yes, that that was something interesting as well. In previous years, you typically see and of course, not every year is typical. There’s a lot of different factors that can impact pricing. But in years past, you would see a steady increase in pricing leading up to the summer because demand starts to pick up, as I said, in the spring season. But this year, prices actually started going down and I’m talking about posted prices in the US. We saw producers decrease prices in January, April and June, which was also an unusual element. 

TS: Yeah, kind of a high number of price changes for one half of the year. 

GW: Yes, yes. I mean, compared to last year – 2022 – where are we saw pretty much monthly increases starting in February, up until almost September. We saw increases. This year, we saw the opposite, which also reflects a little bit of what what’s going on in the market. And it’s been difficult to explain why demand has been off this year. There’s a lot of speculation about okay, it may have been that macro economic factors such as concerns about recession, inflation. There were a lot of other situations that were impacting maybe demand of lubricants. But interestingly enough, according to some companies that track lubricant demand, retail sales of greases and lubricants at some automotive retail chains rose 17% This year in that 52 weeks leading to April 29. And that was a much larger jump than the previous year. So there was demand. But maybe the reason why there was not a lot of bass oil sales and maybe lubricant sales even was because blenders already had pretty healthy inventories and that they need to acquire more product. 

TS: Well, and I think economic forecasts have worsened, both for important regions and globally, have worsened a bit as the years gone on. 

GW: Yeah, that’s right. 

TS: And, you know, a lot of times that’s one of the biggest impacts on lubricant and base oil demand as well.

GW: Yes, that particularly I think, applies to China, because after they lifted all their restrictions, they had really stringent restrictions during COVID. With their zero COVID policies. They had really strict lockdowns. And so when those policies were lifted in December of last year, everybody expected China to really have a very strong recovery. And it has been less than expected, actually. 

TS: Do you think this year’s decreases in base oil prices could have also been partly due to the fact the prices were high? They weren’t quite high last year, weren’t they? 

GW: Yes, yes, that’s true. But a lot of of the upward movement was also supported by really high crude oil and feedstock prices. And that I would say the Russian war on Ukraine was the factor that impacted prices since February of last year. And so we saw really high crude oil prices. And of course, base oil producers had to adjust their pricing as well. 

TS: Do you have a sense of how things are shaping up for the rest of the year?

GW: It’s really hard to say what is going to happen. Typically, we would see a slowdown at this time of the year right around the end of the summer, and producers start in their efforts to lower inventories because they don’t want to reach the end of the year with high inventories. And so I would say most people would expect a little bit of a slowdown, but at the same time, there are other factors that might impact the market. And whether it’s always a wild card. Because, you know, sometimes we see really bad storms on the US Gulf Coast in August and September. And so that could you know, impact pricing, and of course, production and pricing. So I typically don’t like to predict what prices will do, because there’s a lot of different things that may change. But yeah, we still have to keep an eye open for possible disruptions.

TS: I’m interested to ask you something about you mentioned weather, and I think you’re talking in particular about in in the Americas and the fact that hurricane season has begun. And historically that can be a huge disruption to base oil supply along the US Gulf Coast. Many years, we hear base oil suppliers talk about building inventories ahead of hurricane season. And I think even lubricant companies will also talk about doing that to try to provide a cushion in case there is some kind of disruption. But isn’t this a year where … at least lubricant companies have been keeping lower inventory is partially because of demand and because they’re anticipating the possibility that prices will continue to go down? 

GW: Yes, I think that’s that’s right. I think that maybe this year, both base oil suppliers and buyers and lubricant market participants have been keeping lower inventories. At the beginning or even before the start of the hurricane season. There were predictions that the season was going to be a mild one, and maybe that impacted a little bit their decisions. Although those predictions those forecasts have changed and they the main weather forecasters have now said that the season might be closer to normal. So several storms are expected. And the other interesting thing is that sometimes disruptions happen in places that we’re not expecting because for example, last year, there was heavy flooding in, in the Midwest of the United States. And one of the main additive production plants, the Afton chemicals plant in Illinois, was flooded and they had to shut down and declared force majeure. So, you know, sometimes things can happen in places that you don’t expect. 

TS: Well, it’s certainly true. Do you hear any discussion in the market? Is anybody concerned that inventories for base oils may be too low for hurricane season? 

GW: I haven’t heard that comment at all. That’s a good question. I suppose that after the experience of previous years, when major storms have caused output, this disruptions, I think, most people have learned their lesson and they’re well prepared. And the thing is, sometimes storms don’t cause major damage to plants and disruptions may be short. But still, a lot of plants have to shut down ahead of the storms just in case in preparation. So even a short shutdown could cause some problems. I’m not sure. As far as inventories are concerned, I would imagine that most people are well covered. But I haven’t heard any particular comments as to you know, we’re worried we don’t have enough product at the moment. 

TS: One of the things I wanted to ask you about – it seemed like there were quite a large number of maintenance turnarounds during the first half of the year, was is that in my imagination? Was it a normal amount, or were there more than usual?

GW: No, I think you You’re right. I mean, it was a normal amount. But yeah, there were quite a few shutdowns, turnarounds in the first half of the year, although, interestingly enough, those turnarounds, especially one at the excellent para loops plant, which was expected to affect supply quite substantially, did not have that kind of impact. It seemed that other producers who are running well, and the market was still well supplied. We didn’t see any supply shortages. And in fact, many group to producers were able to export group to base oil. So I don’t think some of those turnarounds had a huge impact on supply. 

TS: Are there many turnarounds still scheduled yet this year, or have we gotten most of the way through those?

GW: As far as I know, the Chevron planta at Pascagoula is either finishing up their turn around, they started one in June, and they were expected to bring back the plant online in mid July or end of July. And then Calumet has planned a turned around as well, in mid July for their paraffinic oils, and I don’t know if any other turnarounds scheduled for the rest of the year. But you never know, sometimes there are unexpected production issues that have to be addressed. So there could be unexpected, unexpected turnarounds.

TS: Is that something if that type of activity, if there’s going to be less of it during the second half of the year? Is that something that could be a force for downward pressure on prices? 

GW: Yes, of course, there could be some downward pressure if inventory start to rise. And another thing that producers tend to do when that happens is that they would adjust production rates. Last year, for example, because there were some other factors in play – for example, the price of diesel was quite high – many refiners had decided to stream more feedstocks into diesel production. So, base oil production was reduced. And this year, diesel prices haven’t been as high, so base oil margins were more attractive. So, you saw a lot more base oil production. But, you know, refiners can adjust their production rates and that could also bring more balance into the market. 

TS:  Well, I think we’ve used up our time and have covered things pretty well. Thank you very much for the analysis, Gabriela, it’s always insightful to hear what you’re seeing in the markets. 

GW: Thank you.

TS: And to our audience thank you for listening and we hope to have you again here soon thank you. 

GW: Thank you.

Related Topics

Base Stocks    Business    Finished Lubricants