Base Oil Price Plummets as the Looming Recession Threats the Lubricant Market

In early November 2022, the US witnessed an end of driving season, and Base Oil consumption began to fall. Economic turbulence and rising inflation have also influenced the demand for lubricants, Base oil, and other finished goods. Several lubricant producers have started to provide discounts or lower their prices to retain clients or reclaim market share, which is a sign that consumption levels have declined. Although prevalent, the lubricant market decreases were not considerable and were primarily negotiated on a case-by-case basis, not publicly stated. Before this, lubricant producers tried to adopt price increases to counterbalance rising Base Oil prices and other building expenses, including higher additive costs and shipping charges, which increased costs for most of the year.

Since availability lengthens in the final quarter of 2022 and suppliers alter production rates correspondingly, the inventories of the Base Oil were in an overstock situation that was not expected. This year, higher diesel prices coupled with a global supply shortage provided an additional incentive for minor viscosity reduction to be added with diesel and more feedstocks used in distillation because of higher profit margins.

Several companies have reduced production rates to control growing stocks and prevent price declines. While some refiners increased the flow of feedstocks into distillate production, others decreased price expectations to win orders before the year's end. Although most participants believed prices had bottomed out, Mexican purchasers did not seem interested in larger cargoes of Base Oil and were securing truck-sized amounts out of storage tanks in Brownsville.

Although the supply of additives downstream was improving, some areas of the market were still experiencing a shortage of Base Oil supplies, which impacted blending operations. Force Majeure at two large producers' facilities has been lifted, and the additives market was still expected to be constrained for the foreseeable future, leaving demand dull for Base Oil in the US.

According to ChemAnalyst, the prices of Base Oil in the US market have dropped due to declining demand. The decreasing price trend of Base Oil in the US will likely continue throughout this year due to the holiday season during December.