Spring Fever
Every March, base oil market participants hope to see not only flowers bloom but also demand begin to flourish as they prepare for the summer driving season and an uptick in lubricant consumption levels.
This year, many seemed concerned that the softer activity levels observed over the past two years—which were largely driven by a decline in motor oil consumption—would again be replicated in a lusterless season.
Worries directly related to traditional supply and demand fundamentals were compounded by much upheaval and confusion originating from the new tariff regime implemented by United States president Donald Trump in early March.
President Trump imposed 25% tariffs on imports from Canada and Mexico, and 10% on imports from China on top of a previously implemented 10%, effective March 4. Canadian energy imports, including base oils, would be subject to reduced levies of 10%. Canada and China immediately responded with retaliatory tariffs on U.S. imports, while the Mexican president also said that the country would implement similar measures. However, Trump later granted a one-month postponement on tariffs for Mexico and Canada.
Both consumers and suppliers said that it was too early to ascertain exactly how the tariffs would affect their business and to quantify their impact, with many voicing concerns about increased production expenses due to the potentially higher cost of feedstocks, raw materials and components. Others said that they were not sure which products would be subject to the new tariffs. For example, it was not clear whether finished lubricants and greases coming from Canada would be subject to the same tariffs as energy products and base oils.
A number of U.S. base oil suppliers acknowledged that their Mexican customers had postponed orders until a clearer picture emerged, while U.S. exporters to Canada were unsure whether the current tariff schedule for certain products was still valid or not.
Amid what resembled a fever-induced daze, market players tried to focus on day-to-day operations. Demand for API Group I grades was fairly robust and supplies tightened, offering support to firm pricing in February and March. Prices for bright stock—still the star of the Group I category—also strengthened because availability was strained in the U.S. and other regions. This was partly attributed to a structural shortage given permanent Group I closures and ongoing plant turnarounds.
However, with additional Group II heavy-viscosity grade capacity scheduled to come on stream at ExxonMobil’s plant in Singapore later this year, more material with bright stock characteristics was expected to come to market, alleviating some of the tightness.
Group II supplies were likely to be limited on the back of a number of turnarounds that were scheduled in the first half of the year. Most of the suppliers were expected to build inventories ahead of the turnarounds to meet contractual obligations, but spot availability would be more limited.
Calumet planned to shut down its Group I and Group II units in Shreveport, Louisiana, for two weeks in the second half of March—a slight delay from its original schedule in February.
Chevron was expected to commence a three-to-four-week turnaround at its Pascagoula, Mississippi, Group II plant in March as well, but further details were not forthcoming.
Ergon announced that the company’s paraffinic refinery in Newell, West Virginia—which houses a Group I and Group II base oils unit—had scheduled a planned maintenance program beginning March 31 for approximately seven weeks to implement several reliability improvements.
Group III spot prices inched up in March as well, as they received support from curbed output in the U.S. and reduced import volumes since the beginning of the year. Upcoming plant turnarounds at Bapco in the Middle East and SK Enmove in South Korea might further strain global spot availability and offer support to prices, with spot values already having moved up in Asia.
On the export front, buying interest from Mexico was somewhat muted due to uncertainties regarding the new tariffs. Brazilian demand for U.S. cargoes was not as strong as in the second half of 2024, but appetite ticked up given the production issues at Brazilian producer Moove’s lubricant plant after a fire in mid-February. The balance of the Brazilian suppliers were hoping to fill the supply gap left by the affected producer and were looking to increase inventory levels.
On the naphthenic base oils side, prices were reported as steady. But upward pressure was building despite mostly lower crude oil prices in March, as supplies were strained by budding demand and reduced availability following a naphthenic refinery turnaround.
San Joaquin Refining’s unit in Bakersfield, California, completed a turnaround between January 31 and February 28. The producer continued to meet contractual obligations during the shutdown, as it had built inventories for that purpose. However, it was unable to offer additional cargoes and was also trying to fulfill a backlog of orders for the light grades—perhaps an indication of a supply shortage against an uptick in demand.
The feverish spring activity that used to capture the market in years past may give way to a more sedate pace in 2025, but everyone hopes to find an effective way to handle the new developments and reach the busy summer season in top form.
Gabriela Wheeler is base oil editor for Lubes’n’Greases. Contact her at Gabriela@LubesnGreases.com