Even Base Oil Markets Suffer from S.A.D.

In early September, API Group II, Group II+ and Group III base oil suppliers lowered posted prices between 10 cents and 50 cents per gallon. Group I producers stepped out with a 20 cent-per-gallon decrease across the board later in the month, although ExxonMobil and Paulsboro abstained from announcing Group I adjustments, as they had granted temporary value allowances (TVAs) that were comparable to the posted price decreases.

Soon after, in early November, the two producers communicated posted price decreases on their Group I grades of 15 cents and 20 cents/gal, with the exception of bright stock, which remained unchanged. A majority of Group II, Group II+ and Group III suppliers also announced posted price decreases of 15, 20, 25, 30, 40, and 50 cents/gal, varying according to the grade and the producer. While the decreases themselves were not particularly surprising, what was out of the ordinary was the amount of some of the reductions, which some participants considered quite hefty.

In late October, SK Enmove also lowered all of its Group II+ and Group III base oils by 20 cents/gal, with the exception of the Group III 6-cSt grade. This adjustment was thought to have been implemented to bring the company’s prices more in line with other suppliers’ postings.

All of the decreases partly reflected a situation that had been going on for weeks, in that suppliers had granted many accounts TVAs to promote orders and clear inventories at the end of the hurricane season. 

In October, several Group I and Group II grades experienced tighter conditions partly because a U.S. producer had suffered an unexpected production issue that resulted in one to two weeks’ maintenance.

Additionally, a turnaround at Chevron’s Group II/Group III plant in Richmond, California, was completed at the end of October, and the producer was also understood to be planning to take its Pascagoula, Mississippi, plant off-line for three weeks in the first quarter of 2025. 

Within the Group III segment, downward pressure on the 4-cSt cut had led to more significant adjustments than for the 6-cSt and 8-cSt grades. A domestic producer’s cutting back of its Group III 4-cSt output to boost its Group II production might tighten that segment slightly. All of the Group III cuts were deemed plentiful, as domestic production had increased in the previous months and fresh cargoes from the Middle East and Asia were anticipated to reach U.S. shores over the next few weeks. 

Export activity slowed down as well, with most transactions involving shipments into Mexico—some of them concluded at lower price levels as a couple of suppliers experienced inventory pressure. There were almost no spot shipments to India—a country that typically receives large volumes of U.S. base oils in the fourth quarter—because the domestic market in the U.S. had not been as oversupplied as in years past and the arbitrage was still largely unworkable.

On the naphthenic base oils front, base oil producers Ergon, Process Oils and Calumet decreased prices by 20 cents/gal in mid-September. A few naphthenic accounts also received decreases because their contracts were tied to a diesel index and diesel prices had weakened along crude oil values. In October and early November, prices were reported as steady, although there had been talk about TVAs and discounts being granted given lower crude oil and diesel values. Demand for the lighter pale oils remained healthy and supply was deemed balanced against requirements. 

Lubricant and finished products prices were also exposed to downward pressure as manufacturers tried to maintain or gain market share and confronted competitive situations. Some manufacturers had managed to secure discounts for additives, but the decreases had not been granted by all suppliers, and not every blender saw additive adjustments.

Meanwhile, crude oil and feedstock values were swayed by news emerging from the Middle East about the Israel-Hamas war, and from China as oil demand was expected to be disappointing from the world’s top oil importer. The market also weighed how President-elect Donald Trump’s policies might affect supplies. West Texas Intermediate front-month futures hovered at $72.36 per barrel on Nov. 7, from $77.14/bbl on Oct. 7 and $67.67/bbl on Sept. 6. Crude oil prices may become one of the key fundamentals affecting refiners’ decisions as winter approaches.