The Hamas attack on Israel over the weekend has injected a wave of unpredictability into the world of crude oil markets. This sudden jolt in the crude oil sector has left many wondering about the future of base oils. While some anticipated that the abrupt surge in crude prices at the beginning of the week would unsettle potential buyers and temper their enthusiasm, others speculated that it might encourage base oil consumers to secure their products before prices climbed further. This foresight was driven by the possibility of escalating geopolitical tensions in the Middle East leading to higher crude oil prices in the weeks to come.
The crude oil futures experienced a significant leap on Monday following news of the attack, but they slid by more than 2% on Wednesday as concerns regarding supply disruptions in the Middle East subsided. This reduction in worries came after Saudi Arabia, a prominent OPEC producer, pledged to assist in stabilizing pricing. Moreover, the revelation of larger-than-expected increases in U.S. stockpiles of crude and gasoline also exerted downward pressure on prices.
An already tightening supply and demand equilibrium, coupled with soaring crude oil and feedstock prices, had already driven up base oil spot values since late August. This left buyers apprehensive about the possibility of further price increases in the near future.
In an attempt to stay competitive with soaring gasoil prices and to justify their focus on base oil production over distillates output, Asian base oil manufacturers had implemented collective strategies to push base oil prices higher. Some refineries had already reduced their base oil production rates in favor of distillates. However, the outcome of this shift could be subject to change, contingent on developments in the crude oil and feedstock sectors in the upcoming weeks.
Base Oil Trends In India
Initially met with resistance from buyers, the increased price indicators for base oil had, for the most part, been embraced. This acceptance stemmed from the fact that many buyers had depleted their stockpiles and were in urgent need of replenishment. This demand was particularly prominent in regions like India, where consumers had been waiting for the monsoon season to conclude and for industrial and automotive activities to regain momentum.
Nonetheless, once these buyers have secured their required products for the upcoming weeks, there is a possibility that demand may decelerate. This could occur as blenders aim to conclude the year with just enough inventories to sustain their day-to-day operations.
Buyers in the Indian market occasionally have the opportunity to capitalize on competitive offers from manufacturers seeking to reduce their inventories before the year-end. In some instances, API Group II shipments originating from the United States find their way to India during the fourth quarter. However, recent reports haven’t indicated many such transactions, potentially due to the balanced-to-tight situation within the U.S. Group II segment. It’s possible that U.S. producers might not have surplus cargoes available for competitive spot market deals, or they may not be pressed to sell, considering other options like shipping cargoes to destinations closer in proximity, such as Brazil.
The Asian Group I pricing was experiencing upward pressure due to constrained supplies and robust demand. There were only a limited number of spot cargoes emerging in the market during the week. Producers in Thailand and Indonesia were giving precedence to fulfilling domestic requirements before considering export opportunities.
Base Oil Trends In Japan
The situation was further compounded by an extended turnaround at a Japanese Group I plant and the permanent shutdown of another unit this month, which exacerbated the supply constraints.
Simultaneously, the onset of the fourth quarter, marked by macroeconomic uncertainties and a practice among participants to deplete existing stocks and maintain lean inventories to avoid year-end tax implications, was casting a shadow over overall business activity.
Base Oil Trends In China
In China, there were still ongoing inquiries from buyers, particularly for heavy-viscosity grades and bright stock, which remained in short supply due to structural shortages in these categories. While the buying appetite was moderate, there were notable inquiries throughout the week, following a period of inactivity during the week-long National Day holidays.
The Chinese economy, while making progress, had yet to attain the growth rates initially anticipated when it lifted strict COVID restrictions. Consequently, most economic sectors, including the lubricants and base oil industries, grappled with uncertain prospects.
Base Oil Trends In Northeast Asia
Across Asia, the availability of Group II base oils continued to be tight, particularly in Northeast Asia. This tightness was accentuated as the sole Taiwanese producer, Formosa Petrochemical, was scheduled to undergo a two-month turnaround starting this week. While Formosa had reportedly stockpiled inventories to meet domestic obligations during the shutdown, most spot exports were expected to be suspended. However, the producer hadn’t provided direct confirmation regarding the turnaround schedule.
In contrast, the Group III segment was showing signs of surplus supply, with indications that supplies were outpacing demand in Asia. Excess cargoes were reportedly being offered to Middle East countries. Over the past few weeks, several Group II and Group III cargoes had found their way from South- and Northeast Asia to the United Arab Emirates and Saudi Arabia, in addition to regular shipments to the U.S., Europe, and various Asian destinations.
Base Oil price In Asia
Base oil spot prices in Asia exhibited stability to firmness during the week. Prices for some grades saw upward movement, while others remained unchanged. The following price ranges encompass a spectrum of discussions, bids, offers, deals, and widely acknowledged benchmarks for the region.
Ex-tank Singapore prices remained steady compared to the previous week. The Group I SN 150 grade held at $820/t-$860/t, while the SN500 maintained its position at $940/t-$980/t. Bright stock prices also stood still at $1,130/t-$1,170/t, all ex-tank Singapore.
Group II base oil prices were assessed at $1,000/t-$1,030/t for the 150 neutral and held steady at $1,050/t-$1,090/t for the 500N, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 rose by $10/t to $750/t-$790/t, and the SN500 increased by $10/t to $890/t-$920/t. Bright stock prices were also up by $10/t at $980/t-$1,010/t, reflecting limited availability in the FOB Asia market.
The Group II 150N remained at $890/t-$920/t, FOB Asia, while the 500N rose by $10/t to $930/t-$960/t, FOB Asia.
In the Group III segment, prices for 4 centiStoke, 6 cSt, and 8 cSt grades were stable. The 4 cSt was assessed at $1,320-$1,350/t, the 6 cSt was reported at $1,290/t-$1,330/t, and the 8 cSt grade remained unchanged week on week at $1,030-$1,070/t. These price indications were for fully approved products and FOB Asia.
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