US base oil and lubricant market participants continue to struggle managing risk and prices amid persistent crude volatility due to the US-Iran war.
Base oil supplies are tightening in the US and globally for all grades, especially Group III pricing, pushing all US base oil prices to record highs. The record-high base oil prices add risk to blenders in terms of their inventory carrying costs, as well as managing inventory levels because of concerns about being overstocked if the market starts to decline.
Finished lubricant blenders are working to pass along base oil increases to their customers, and have succeeded in some cases. But several blenders are facing pushback from lubricant buyers unwilling to to accept the full increases, due largely to crude volatility.
Nymex WTI hit its lowest during the US-Iran war in early July, in the upper-$60s/bl, despite minimal changes to crude and vessel traffic through the strait of Hormuz. But it later rose with resumed fighting, closing 24 July just shy of $90/bl, then fell below $80/bl on 28 July before rebounding to the mid-$80s/bl level by 31 July.
This pushed lubricant buyers to argue for lower prices because crude is often a major factor in base oil and lubricant pricing. Additionally, no Group II base oil producer announced posted price increases in July for their base oils.
Lubricant buyers also often have prices linked to refinery postings, even if blenders are not as linked to refinery postings on their base oil purchases.
Lubricant blenders received no price relief on base oils in July and remained constrained on lubricant production. Several Group III sellers tightened allocation levels in July, while Group II sellers kept most blenders on contract minimums.
This is creating increased tightness on lubricant availability, particularly for 0W, full synthetic and Dexos-approved grades. The tightness in those grades has pushed some blenders to shift to more synthetic-blend and conventional motor oils, which use less or no Group III volumes.
