Base Oil Prices Dip Amidst Soft Demand and High Inventories in November 2024

Base Oil prices in the US experienced a downward trend in early November, marking a deviation from the period of relative stability observed earlier. This decline was attributed to weak demand from the downstream lubricant industry and elevated inventory levels which led major players for market adjustments to lower their offered quotations during this period.

The US Base Oil prices have declined to settle at USD 1905/MT Base Oil Group II H600 during the first half of November 2024 on the back of softening demand and inventory build-up. The downstream lubricant industry has shown a significant reduction in Base Oil orders, contributing to the price decline. This softening of demand was linked to economic uncertainties due to the U.S. presidential election and reduced industrial activity. Demand for Base Oil weakened post-driving season as the downstream lubricant inventories remained elevated due to reduced consumption and heavy discounts were provided ahead of year-end. Intense competition among manufacturers has led to downward pressure on lubricant and finished product demand, as companies seek to maintain or increase their market share. Additionally, high inventory levels held by lubricant producers and blenders have further exerted downward pressure on Base Oil prices.

Moreover, the continuous decline in upstream crude oil prices has had a ripple effect on Base Oil markets. As crude oil prices decrease, the cost of producing Base Oil also declines, which further supports the manufacturing costs of Base Oil. A temporary production disruption at a major producer, Chevron led to a slight tightening of supply for specific Group I/Group II Base Oil grades. However, the impact on supply chain values was limited due to substantial pre-shutdown inventory buildup and heightened competition to clear their stocks. Several prominent industry players, including Motiva and Chevron, have announced fresh adjustments to their Base Oil pricing to remain competitive in the market. As November begins, the market is characterized by ample material availability, driven by both import and domestic suppliers seeking to reduce their inventory levels.

As per ChemAnalyst, the Base Oil prices are expected to decline during the upcoming weeks as well if demand from the downstream lubricant industry continues to weaken and inventory levels remain high. Moreover, several participants may clear their inventory levels. Demand is anticipated to remain weak due to seasonal factors to reduce stockpiles before the year's end. Ample supplies of the finished goods are anticipated, prompting the manufacturers for price adjustments during this timeframe.