Weekly Asia Base Oil Report: 01 – 07  October 2023

In the Asian base oil market, prices have continued their upward trajectory, with one notable exception being the API Group III category, where values have seen a decline due to lukewarm buying interest despite abundant availability. On the other hand, both Group I and Group II prices have found support from a tightening supply and demand dynamic, coupled with the surge in prices of crude oil, feedstock, and fuels.

The supply squeeze can be attributed in part to a reduction in base stock production, as refiners have shown a preference for diverting more feedstocks towards the production of middle distillates, particularly gasoil. This shift is driven by higher profit margins and the snug availability of these middle distillates. However, this trend hasn’t necessarily been mirrored in Group III refineries, where Group III base oils are still able to command attractive premiums.

Base Oil Trends In Russia

A contributing factor to the global tightening of diesel has been the ban on Russian exports of diesel and marine fuels. This restriction has driven up diesel prices and has also influenced refiners in their decision-making process regarding which refined products to prioritize. It’s worth noting that Russia has recently lifted its ban on diesel and marine fuel exports, which may help alleviate the prevailing tight conditions in the market.

The decision by Russia and Saudi Arabia to reduce their crude oil production until the end of the year, aimed at providing support to oil prices, has emerged as a significant driver behind the remarkable surge in crude oil values observed over the past three months. This week, Brent futures have reached heights above $95 per barrel, a considerable increase from the levels seen around $75/bbl in early July.

One of the key triggers for this spike in oil prices was the depletion of crude stocks at the crucial storage hub in Cushing, Oklahoma, United States, which dropped to their lowest levels since July of the previous year. During Asia trading hours, U.S. West Texas Intermediate futures breached the $95 per barrel mark, reaching their highest point since August of the prior year.

Additionally, concerns regarding a potential supply shortfall have also impacted Brent crude prices, with November futures trading at $96.96 per barrel on the London-based ICE Futures Europe exchange on September 28, up from $94.30/bbl on Sept. 21.

Base Oil Trends In Dubai

Furthermore, in the realm of Dubai front month crude oil (Platts) financial futures, October saw a settlement at $94.98 per barrel on the CME on September 27, as compared to $92.88/bbl on Sept. 20.

In conjunction with these factors, recent, ongoing, and anticipated plant turnarounds have played a role in diminishing base oil inventories at various producer facilities or in constraining their ability to offer spot cargoes.

Base Oil Trends In Taiwan

The sole Taiwanese Group II base oil producer, Formosa Petrochemical, had been gearing up for a comprehensive two-month maintenance period, set to commence in mid-October. In preparation, they were diligently building up their inventories to meet domestic term commitments during the shutdown phase. Consequently, it was widely anticipated that the producer would suspend the majority of its spot exports for the duration of the plant’s closure.

Base Oil Trends In Japan

Meanwhile, a notable Japanese Group I producer, Eneos, had embarked on an extensive three-month maintenance program at its Mizushima-A Group I facility. Additionally, they had made the strategic decision to permanently idle their Group I Wakayama refinery, which accommodated a Group I plant, starting in October.

With the tightening availability of both Group I and Group II grades, coupled with the persistent rise in production costs, suppliers found themselves compelled to raise their offer prices. Buyers, recognizing the dwindling inventories, were increasingly inclined to accept these higher price levels. This trend was particularly conspicuous in the Group I sector, where the supply of several grades had constricted, sparking heightened buying interest among consumers.

Base Oil Trends In China

Bright stock prices experienced a rapid ascent, driven by heightened competition among Chinese buyers who were actively seeking to secure shipments. This surge in demand can be attributed to a structural shortage of this particular grade within the country, primarily due to its extensive utilization in industrial applications and as a crucial component in marine and railway lubricants.

The Chinese government’s strategic push to revitalize industrial output, aimed at pulling the nation out of an economic downturn, was contributing to this surge in activity. Anticipation was high that industrial activity would witness a notable uptick.

Furthermore, lubricant blenders were gearing up to meet the rising demand in preparation for the upcoming week-long National Day holiday, commencing on October 1st. Traditionally, this holiday sees a significant influx of travelers heading to their hometowns. In 2019, before the onset of the coronavirus pandemic, an impressive 782 million people partook in National Day travels, with approximately one-third of them utilizing vehicles for transportation, according to data from the Ministry of Culture and Tourism.

This heightened demand for imports, which had previously been somewhat subdued in China, appeared to be rekindling. Import-related discussions were on the rise, with indications of a 5,000-ton shipment from Singapore to China on the immediate horizon. Moreover, expectations were set for approximately 10,000 metric tons to be dispatched from Daesan and Onsan in South Korea to Zhapu and Tianjin in mid-October. Another 1,000-ton cargo was being considered for shipment from Yeosu, South Korea, to Tianjin during the same period. Additionally, a substantial 2,700-ton shipment, comprising five different grades, was slated for transfer from Onsan to Jingjiang, Nantong, and Zhangjiagang in mid-October. Lastly, an additional 1,000 tons were under consideration for shipment from Yeosu to Rugao in mid-October as well.

Base Oil Trends In Southeast Asia

In Southeast Asia, there was a noticeable insufficiency in domestic supplies to meet the rising demand, particularly as the conclusion of the rainy season in certain countries had spurred increased economic activity. Producers in some regions, such as Thailand, were prioritizing the fulfillment of domestic demand before considering export offers. In the coming weeks, buyers anticipated the emergence of Group I spot availability from Indonesia, while Group II supplies were perceived as more abundant, leading buyers to exhibit greater resistance to higher price offers. The Group III sector appeared to be grappling with oversupply issues, which were exerting downward pressure on prices.

Throughout the week, discussions revolved around several shipments bound for the region. A substantial 5,100-ton shipment was likely to depart from Yeosu and Onsan in South Korea, destined for Koh Sichang, Thailand, with an expected arrival in late October. Additionally, there were mentions of a 5,000-ton consignment set to sail from Nagoya, Japan, to Singapore at the end of October. Further, quotes were provided for a shipment ranging from 4,000 to 5,000 metric tons, scheduled to depart from Malacca, Malaysia, to Port Klang, Malaysia, during the first week of October. Lastly, an anticipated 10,000-ton cargo was in the pipeline for shipment from Dumai, Indonesia, to Ulsan, South Korea, potentially to meet intra-company requirements, with an expected departure in mid-October.

In Southeast Asia, there was a noticeable insufficiency in domestic supplies to meet the rising demand, particularly as the conclusion of the rainy season in certain countries had spurred increased economic activity. Producers in some regions, such as Thailand, were prioritizing the fulfillment of domestic demand before considering export offers. In the coming weeks, buyers anticipated the emergence of Group I spot availability from Indonesia, while Group II supplies were perceived as more abundant, leading buyers to exhibit greater resistance to higher price offers. The Group III sector appeared to be grappling with oversupply issues, which were exerting downward pressure on prices.

Throughout the week, discussions revolved around several shipments bound for the region. A substantial 5,100-ton shipment was likely to depart from Yeosu and Onsan in South Korea, destined for Koh Sichang, Thailand, with an expected arrival in late October. Additionally, there were mentions of a 5,000-ton consignment set to sail from Nagoya, Japan, to Singapore at the end of October. Further, quotes were provided for a shipment ranging from 4,000 to 5,000 metric tons, scheduled to depart from Malacca, Malaysia, to Port Klang, Malaysia, during the first week of October. Lastly, an anticipated 10,000-ton cargo was in the pipeline for shipment from Dumai, Indonesia, to Ulsan, South Korea, potentially to meet intra-company requirements, with an expected departure in mid-October.

Base Oil price In Asia

Once again, the landscape of base oil spot price assessments in Asia exhibited a diverse range of movements this week, with some grades experiencing price hikes, while others remained stable or witnessed slight declines. These price ranges encompass the spectrum of discussions, bids, offers, as well as confirmed deals and widely recognized published prices that serve as benchmarks for the region.

Ex-tank Singapore prices showed an upward trend compared to the previous week. Notably, the Group I solvent neutral 150 grade witnessed a robust increase of $20 per ton, settling in the range of $820/t to $860/t, while the SN500 saw a $10 per ton rise, reaching a range of $940/t to $980/t. Bright stock, on the other hand, exhibited a substantial surge of $50 per ton, now priced between $1,120/t and $1,160/t, all ex-tank Singapore.

Moving to Group II, the 150 neutral grade experienced a $20 per ton increase, with prices assessed at $990/t to $1,030/t, while the 500N grade followed suit with a $20 per ton uptick, now ranging from $1,050/t to $1,090/t, ex-tank Singapore.

Shifting to an FOB Asia basis, Group I SN150 prices moved up by $20 per ton, landing in the range of $740/t to $780/t, and the SN500 also registered a $20 per ton increase, now quoted at $870/t to $910/t. Bright stock prices surged by a significant $50 per ton, with a range of $960/t to $1,000/t, attributed to limited availability on the FOB Asia market.

In the realm of Group II, the 150N grade experienced a modest $10 per ton increase, with prices now at $880/t to $920/t FOB Asia, while the 500N grade followed suit with a $10 per ton uptick, ranging from $910/t to $950/t, FOB Asia.

In contrast, the Group III segment faced declining prices for the 4 centiStoke, 6 cSt, and 8 cSt grades, primarily due to an abundance of supplies and heightened competition among suppliers. The 4 cSt grade saw a notable decrease of $20 per ton, with prices assessed in the range of $1,320/t to $1,350/t, while the 6 cSt grade dipped by $10 per ton, now ranging from $1,290/t to $1,330/t. The 8 cSt grade experienced a more significant decline, dropping by $30 per ton to a range of $1,030/t to $1,070/t, reflecting limited discussions and an increasing supply. All price indications are on an FOB Asia basis for fully approved products.