Weekly Asia Base Oil Report: 08 – 14  October 2023

Conditions in the Asian base oils market appeared relatively stable, with a well-balanced supply and demand equation and recent upticks in feedstock prices bolstering the prevailing price structure. Concurrently, there was robust buying interest. Nevertheless, these market fundamentals unfolded against the backdrop of geopolitical uncertainties stemming from the ongoing conflict in Ukraine, which had driven crude oil and diesel prices to their highest levels in over a year last month. Additionally, tensions between the United States and China added another layer of complexity.

Base Oil Trends In China

Furthermore, concerns loomed over the economic health of various countries in the region, including the pivotal Chinese market. These concerns had a ripple effect on numerous industries and sectors heavily reliant on fuel and refined products, such as the construction and real estate development sectors in China.
As China observed the National Day holidays this week, activity in the country largely came to a temporary pause. Nevertheless, amidst this hiatus, shipbrokers were engaged in discussions regarding several noteworthy base oil shipments. One of the standout mentions was a substantial 1,600-metric ton consignment comprising two distinct base oil grades, slated for dispatch from Onsan, South Korea, to Tianjin. This shipment was scheduled for late October to early November. Additionally, a similar cargo, also originating from Ulsan, South Korea, was anticipated for mid-October, destined for Tianjin. Furthermore, discussions included a 1,500-ton lot with plans for lifting in Onsan and subsequent delivery in Zhenjiang, set for late October.

Base Oil Trends In South Korea

South Korea experienced a period of reduced activity due to the occurrence of both the Chuseok and National Foundation Day holidays, spanning from September 28 to October 3. Apart from the shipments previously mentioned for China, there are several other notable South Korean base oil consignments in the pipeline. One significant movement involves the transportation of 5,000 tons from Yeosu, South Korea, to Hamriyah, United Arab Emirates, with the expected departure scheduled for late October. Additionally, a 1,000-ton cargo destined for Keelung, Taiwan, was mentioned for mid-November shipment. Furthermore, multiple cargoes were under consideration for potential shipment to India.

In another development, a substantial 7,000-ton cargo comprising three different base oil grades was anticipated to be shipped from Ulsan to both Mumbai and Jawaharlal Nehru Port Trust in India during the last week of October. Additionally, a 4,000-ton parcel consisting of three base oil grades was discussed for lifting in Malacca, Malaysia, with a destination in Chennai, India, in late October. Furthermore, there were discussions about an 8,000-ton combination cargo containing base oils and aniline, being considered for shipment from the U.S. Gulf to Kandla, India, in the latter half of October.

Supply in the Asian base oils market has tightened recently due to a series of ongoing and upcoming refinery turnarounds, with some refineries reducing base oil production in favor of distillates, driven by more favorable profit margins. However, the rising base oil prices witnessed in recent weeks have led to improved base oil premiums over gasoil, which has reduced the incentive for refiners to prioritize gasoil production over base oil.

Base Oil Trends In Japan

In Japan, the production of base oil has experienced a consistent decline since the beginning of the year, reaching its lowest levels during August and September, as per reports. Several factors contribute to this decline. Firstly, there’s been a prolonged decrease in domestic demand for industrial lubricants over the years, although the demand for automotive lubricants remains strong. Secondly, the government has been actively promoting the closure of environmentally unfriendly refineries, further affecting base oil production. In response to these challenges, base oil producers have made various adjustments, including altering production rates, conducting maintenance shutdowns, and even permanently halting production. Additionally, unexpected incidents like a recent refinery fire have disrupted production.

For example, Japanese producer Eneos recently initiated an extensive three-month maintenance program at its Mizushima-A API Group I plant. Moreover, as part of a long-term restructuring strategy aimed at adapting to diminishing domestic fuel demand and intensifying global competition, Eneos plans to permanently idle its Group I Wakayama refinery, which includes a Group I plant, this month. These measures reflect the industry’s efforts to navigate a changing landscape.

Spot cargoes from Taiwan have become scarcer due to Formosa Petrochemical, the sole Taiwanese producer of Group II base oils, preparing for a two-month turnaround starting in mid-October. While the producer had made arrangements to maintain domestic term obligations during this downtime, it was expected to curtail most spot exports.

Conversely, South Korean plants completed their maintenance earlier this year, leading to an influx of products into the market, enabling producers to increase their export volumes. In the forthcoming weeks, there were anticipations of a surge in Group II and Group III offers from South Korea.

Base Oil Trends In Southeast Asia

Meanwhile, the availability of Group I base oils in Southeast Asia remained limited, leading to price pressure. Producers in Thailand and Indonesia made efforts to meet domestic demand and supply Group I grades for export, but resources were constrained. However, there was the possibility that economic uncertainties could affect base oil and lubricant consumption in the region. Both buyers and suppliers were inclined to reduce inventories before year-end to avoid tax implications, which could dampen buying activity in the final quarter.

Base Oil Trends In India

Despite this, Group I prices were reportedly facing upward pressure in India. The end of the monsoon season, coupled with an expected increase in industrial output, population mobility, and oil changes, particularly for heavy-duty vehicles, contributed to heightened demand. Additionally, certain regions in India experienced reduced rainfall, impacting agricultural activities. However, demand from this sector was expected to strengthen. Furthermore, demand typically surges ahead of the Diwali holidays celebrated in mid-November.

In contrast, Group II and Group III offers had risen, but Indian buyers were hesitant to accept higher prices due to the abundance of domestic supplies and the anticipation of new domestic Group III capacity coming online in the coming weeks.

Base Oil price In Asia

Base oil spot price assessments displayed resilience and some upward movement in Asia this week, with various grades witnessing price adjustments while others remained stable. These price ranges outlined below are reflective of comprehensive market discussions, bids, offers, finalized deals, and widely recognized benchmark prices for the region.

Ex-tank prices in Singapore experienced stability and slight increases compared to the previous week. The Group I SN 150 grade remained unchanged at $820/t-$860/t, while the SN500 maintained its position at $940/t-$980/t. Bright stock inched up by $10/t to settle in the range of $1,130/t-$1,170/t, all ex-tank Singapore.

Moving to Group II base oils, the 150 neutral grade saw a $10/t increase at the lower end of the spectrum, settling between $1,000/t-$1,030/t, while the 500N grade remained steady within the range of $1,050/t-$1,090/t, ex-tank Singapore.

Transitioning to an FOB Asia basis, Group I SN150 exhibited stability at $740/t-$780/t, while the SN500 saw a $10/t uptick at the lower end of the range, reaching $880/t-$910/t. Bright stock prices also rose by $10/t at the lower end of the spectrum, ranging from $970/t-$1,000/t, FOB Asia, attributed to limited availability.

In the Group II segment, the 150N grade increased by $10/t at the lower end of the range, settling at $890/t-$920/t, FOB Asia. Similarly, the 500N grade experienced a $10/t rise at the lower end of the spread, with prices ranging from $920/t-$950/t, FOB Asia, and transactions reported at the higher end of this range.

Within the Group III category, prices for 4 centiStoke, 6 cSt, and 8 cSt remained steady, despite some lingering downward pressure due to ample supply. The 4 cSt grade was assessed at $1,320-$1,350/t, the 6 cSt was heard at $1,290/t-$1,330/t, and the 8 cSt grade was gauged at $1,030-1,070/t. These indications represent FOB Asia prices for fully approved products.

In the upstream sector, crude oil futures witnessed a significant decline on Wednesday, attributed to reduced fuel demand in the U.S. and a less optimistic global economic outlook, which was expected to result in decreased oil demand. Both U.S. West Texas Intermediate and Brent futures registered declines exceeding $5 per barrel on October 4.

For instance, Brent crude December futures traded at $84.29 per barrel on the London-based ICE Futures Europe exchange on October 5, compared to $96.96/bbl for November futures on September 28. Dubai front month crude oil (Platts) financial futures for November settled at $84.37 per barrel on the CME on October 4, down from $94.98/bbl for October futures on September 27.