US Base Oil Prices remains Steady Despite Hurricane Beryl

The US Base Oil market exhibited unexpected stability in early August 2024, despite a potential disruption associated with price fluctuations. While the industry grappled with the aftermath of Hurricane Beryl, which caused minor supply chain disruptions, the market demonstrated resilience in the face of both bullish and bearish pressures. Traditionally, the summer months bring about a decline in demand for Base Oils, coinciding with a reduction in crude oil prices, which would normally exert downward pressure on prices. However, this year's market dynamics diverged from this historical pattern.

On the supply side, a combination of factors contributed to a tight market scenario. To prepare for the hurricane season, industry participants had built up inventory levels, which limited available supply. Moreover, unforeseen production outages exacerbated the situation, further tightening the market. Despite the recent downturn in crude oil prices, Base Oil producers maintained their price levels, taking advantage of the constrained supply conditions. Logistical challenges arising from port and terminal closures in the wake of Hurricane Beryl compounded the supply tightness. Transportation disruptions hindered the efficient movement of Base Oils, supporting the upward pressure on prices. Conversely, demand for Base Oils softened as the summer progressed. Finished lubricant producers reported a modest decline in lubricant consumption compared to the previous year, indicating muted demand in the downstream market. Furthermore, intense competition within the finished lubricant sector led to a price stabilization strategy in certain segments, contributing to the overall market balance to settle at USD 1925/MT Base Oil Group II H600 FOB Texas (USA) during the week ending August 2024. While supply-side constraints and logistical challenges exerted upward pressure on prices, weakening demand and competitive pressures in the downstream market counterbalanced these bullish influences.

As per ChemAnalyst, the Base Oil market is expected to rebound due to a potential increase in freight charges. The tight market is foreseen due to hurricane season as production disruptions and a shortage of numerous Base Oil grades could brought on by extreme weather and flooding as the majority of the Base Oils used in the US are still produced near the Gulf Coast, which is subjected to strong storms. The most recent developments in the Middle East concern the potential for full-scale conflict between Israel and the Iranian-backed proxies of Hamas in Gaza, Hezbollah in Lebanon and Syria, and the Houthis in Yemen could introduce fresh risks to logistics in Base Oil trade and supply.