Far from the Madding Crowd 

One development that had definitely caught everyone’s attention was the volatility displayed by crude oil prices in June and part of July. In late June, Israel and Iran pulled back from all-out war after the U.S. bombed Iranian nuclear facilities and a ceasefire was agreed to. With tensions running so high, it was no surprise to see extreme volatility in crude oil markets amid concerns of reduced supply and a possible closing of the Strait of Hormuz.  

However, following the ceasefire, crude oil prices slumped, mitigating concerns about potential base oil posted price increases triggered by earlier price spikes. By early July, the lower oil prices reestablished a sense of stability and muffled discussions about base oil hikes.  

Base oil demand continued to be described as healthy by some producers and lackluster by others, depending on what downstream segments these suppliers cater to. Base stocks that are used in automotive applications had seen an uptick in demand before the summer driving season kicked off in late May because lubricant manufacturers had started to prepare for the peak oil change months when numerous drivers take to the road. Following a busy Fourth of July holiday weekend and summer vacation travel period, requirements were anticipated to slow down. 

At the same time, factory-fill lubricants have seen a drop in demand due to automotive production disruptions caused by the tariff upheaval that started earlier this year. Several countries were in the midst of negotiations with President Trump and his envoys to reach agreements avoiding the high duties that the U.S. leader has threatened to implement. Those tariffs have been put temporarily on hold until Aug. 1 (delayed from an original deadline of July 9). The approach of the new deadline prompted some manufacturers to front-load certain products that were expected to be subject to tariffs. 

The tight fundamentals observed since the first quarter in the API Group I segment started to ease, with the heavier cuts becoming more readily available as maintenance turnarounds at several facilities – including those of Calumet, American Refining Group and Ergon – had been completed and demand had started to soften. Group I bright stock spot availability had been scarce not only in the U.S. but in other regions as well due to permanent plant closures in recent years, coupled with temporary maintenance shutdowns. Still, posted prices seemed to be largely impervious to the strained conditions. 

In the Group II segment, supply was expected to lengthen because plants have resumed production following maintenance programs. Recent turnarounds at base oil plants operated by Chevron, Motiva and Ergon, along with lower operating rates at Excel Paralubes’ unit, had strained Group II spot supplies, but as these units resumed production, additional spot volumes were expected to become available, although the light grades were still described as snug and Excel’s plant was heard to continue running at reduced rates. 

Spot rerefined base oil cargoes were also scarce given recent and upcoming shutdowns. At least one rerefiner reported a sold-out position for about 4-5 weeks given healthy demand and additional orders from buyers who were eager to pad inventories during hurricane season

With hurricane inventory-building efforts underway in the U.S. and the global supply situation still showing signs of tightness, Group III base oil prices remained on firm footing, with spot prices inching up by a few cents per gallon in June. The U.S. imports most of the Group III base oils it consumes from Canada, Asia and the Middle East, and turnarounds in those regions had curtailed spot availability. Run rates at domestic Group III units had also been trimmed, contributing to the general tightness. 

On the naphthenic base oils front, producers had been keeping an anxious eye on crude oil prices as margins had been suddenly squeezed when crude futures shot up, with some suppliers making overtures towards possibly raising base oil prices. However, crude futures later retreated, granting some relief. 

Most pale oils displayed balanced-to-tight conditions, although the light grades were in high demand from the transformer oil segment, while the tire and rubber segments—which call for heavier viscosities–were less dynamic. Supply was expected to become more limited as Ergon was understood to be building inventories ahead of a turnaround in September. 

The base oils market was anticipated to ease into a summer slumber between late July and September, barring unpredictable weather events or more geopolitical developments that could further upset an already tenuous situation. All in all, and despite some influence from international events, the market was expected to keep to itself, somewhat insulated from all the tumult and uncertainty shaking up many other parts of the world.    

Gabriela Wheeler is base oil editor for Lubes’n’Greases. Contact her at Gabriela@LubesnGreases.com