Weekly Asia Base Oil Report: 22 – 28  October 2023

The recent upward trend in base oil prices, observed in Asia over the past few weeks, appears to be losing momentum. This slowdown is attributed to expectations of increased supply and a potential decrease in buying activity. Concerns over a potential surge in crude oil prices, initially triggered by the Israel-Hamas conflict, have somewhat eased as crude oil values retreated slightly after the initial spike but remained volatile.

On Wednesday, crude oil futures experienced a 2% increase, reaching a two-week high. This surge followed a period of declining prices in previous trading sessions, driven by reports of a larger-than-expected reduction in United States oil storage and escalating tensions in the Middle East. Moreover, the region faced the risk of oil supply disruptions, with Iran’s call for an oil embargo on Israel and the possibility of the U.S. tightening export sanctions on Iran.

Considerable attention has been directed towards the recent visit of U.S. President Joe Biden to the Middle East. In a challenging endeavor, Biden seeks to demonstrate support for Israel while concurrently working to secure assistance for Gaza and encourage cooperation among Arab states to alleviate regional tensions.

Several base oils, specifically those within the API Group I and Group II categories, have experienced a tightening balance between supply and demand since August. This situation, coupled with the resilience of crude oil and feedstock prices, has contributed to a consistent upward trajectory in prices.

Base Oil Trends In China

The supply constraints have been exacerbated by ongoing plant turnarounds, with refiners prioritizing gasoil production due to more favorable margins and a global deficit in gasoil supplies. These shortages were further compounded by the temporary ban on Russian distillates and robust demand. However, there is anticipation that China will step in and provide some relief by increasing distillate exports before the year’s end.

The Chinese economy appeared to be making a rebound, following a sluggish performance in the first half of the year, despite initial expectations of a robust recovery after three years of COVID-related restrictions. CNN.com reported that the revival lost steam in the months from April to June due to weak consumer spending, a prolonged downturn in the real estate sector, and subdued global demand for its manufactured products. To rejuvenate growth, Beijing has taken proactive measures, including reducing interest rates, lifting restrictions on car and home purchases, investing in infrastructure projects, and easing capital controls to attract foreign investments, as highlighted in the CNN article.

The lackluster economic conditions also cast a shadow on the base oils and lubricants industry. Industrial performance had been lackluster, and the automotive sector was primarily focusing on electrification, leading to a decreased demand for traditional lubricants. Most base oil buyers were able to meet their needs through domestic production, causing a decline in import volumes.

Nonetheless, there has been a resurgence in interest for certain imports, especially heavier cuts like bright stock, which are in short supply in China. This renewed interest has emerged in recent days as industrial and transportation activities appear to be picking up. Imports of other cuts have become less attractive, as domestic suppliers have lowered their prices to maintain competitiveness and stimulate additional purchases.

Nevertheless, there have been discussions about several spot cargoes set for shipment from South Korea to China. Approximately 2,000 metric tons are expected to be shipped from Yeosu to Tianjin in mid-October, with an additional 1,600 tons from Onsan to Tianjin at the end of the month. A second cargo of about 1,000 tons is being considered for shipment from Onsan to Tianjin this month, and a 6,150-ton lot is mentioned for shipment from Singapore to China in late October. Furthermore, a 2,200-ton cargo is quoted for shipment from Onsan to Huizhou in the first week of November.

Base Oil Trends In in Southeast Asia

The limited availability of Group I spot cargoes in Southeast Asia persisted as a driving force behind price increases, although the upward momentum appeared to be losing steam. While the scarcity of supplies continued to exert upward pressure on prices, the expectation of increased spot volumes entering the market in the coming weeks, coupled with a softening demand, acted as a limiting factor for upward price movements. Bulk shipments remained challenging to secure, whereas smaller cargoes in flexibags from Southeast Asia were more accessible, albeit at a premium.

The situation was further compounded by an extended maintenance period at a Japanese Group I plant and the permanent closure of another Japanese unit this month, which contributed to the tightening of supplies.

In the Group II segment, a similar snugness was observed, with Taiwanese Group II producer Formosa Petrochemical undergoing a turnaround and South Korean suppliers finalizing several transactions for October shipments. Like in the Group I segment, the softening demand partially offset the reduced availability.

Formosa Petrochemical was reportedly idling its Group II plant in Mailiao for a two-month turnaround, commencing in mid-October. However, it was expected that they had built inventories to fulfill most contractual obligations, while spot cargoes remained limited. Specific details of the turnaround were not directly confirmed by the producer.

Base Oil Trends In in India

Formosa Petrochemical regularly dispatched substantial volumes to destinations such as China and India within Asia. Indian demand for base oils had increased following the conclusion of the monsoon season and in anticipation of the Diwali holiday in November, resulting in CFR indications rising by $10 per ton to $30 per ton from the previous week. The heavier grades experienced more significant markups, and even Group III grade offers, which were under downward pressure in other regions, were showing signs of an increase in India.

Base Oil Trends In in South Korea

Numerous South Korean shipments were anticipated for the current and following month, bound for delivery in India. These shipments included approximately 7,000 metric tons scheduled for dispatch from Ulsan to Mumbai around October 26, as well as roughly 35,000 metric tons set to sail from Yeosu to Kandla and Mumbai in mid-November. Additionally, a parcel weighing between 4,000 to 5,000 tons was under consideration for shipment from Daesan or Pyontaek to Chennai in mid-November.

Base Oil price In Asia

In the Asian market, the Group III segment continued to expand, with suppliers offering competitive prices in their eagerness to either maintain their market share or acquire new accounts, particularly within Southeast Asia and India. Most Asian manufacturing facilities were operating efficiently, resulting in an increased availability of cargoes and providing blenders with numerous options. Stricter automotive emissions and fuel efficiency standards were also expected to boost the demand for Group III base oils in automotive lubricants, especially as the premium over Group II alternatives had decreased.

Across Asia, base oil spot price assessments remained steady to firm during the current week, with certain grades experiencing price hikes while others remained unchanged. The price ranges discussed below encompass negotiations, bids, offers, transactions, and published prices that are widely recognized as benchmarks in the region.

In the ex-tank Singapore market, prices showed stability or modest increases. The Group I SN 150 grade edged up by $10 per ton to $830-$870 per ton, while the SN500 saw a $20 per ton increase to $960-$1,000 per ton. Bright stock prices surged by $50 per ton to $1,180-$1,220 per ton, all ex-tank Singapore.

Prices for Group II 150 neutral were assessed as unchanged at $1,000-$1,030 per ton, and the 500N remained steady at $1,050-$1,090 per ton, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 increased by $20 per ton to $770-$810 per ton, whereas the SN500 remained firm at $890-$920 per ton. Bright stock prices saw a rise of $20-$30 per ton to reach $1,000-$1,040 per ton, FOB Asia, primarily due to limited availability.

The Group II 150N was hovering around $890-$920 per ton FOB Asia, while the 500N remained steady at $930-$960 per ton, FOB Asia.

In the Group III segment, prices for the 4 centiStoke, 6 cSt, and 8 cSt grades experienced declines due to an increase in supplies. The 4 cSt grade saw a decrease of $30 per ton to $1,290-$1,320 per ton, while the 6 cSt grade also dropped by $30 per ton to $1,260-$1,300 per ton. The 8 cSt grade recorded a more substantial decline, falling by $40 per ton to $990-$1,030 per ton. These price indications are for fully approved products on an FOB Asia basis.