Base oil purchasers were reconsidering their buying tactics due to divergent market conditions. On one hand, a surge in supplies and weaker demand in Asia resulted from the resumption of base oil units after routine maintenance and unexpected plant problems, leading to downward pressure on prices. Conversely, there were predictions of increasing base oil prices and refinery run rates in the upcoming weeks due to rising crude oil and feedstock costs. Moreover, recent extreme weather conditions like heavy rain, floods, and landslides in India, China, Japan, South Korea, and Southeast Asian nations added to market uncertainties.
The majority of Asian plants were operating at full capacity as they found favorable margins in base oil compared to distillates during the past months. This led to ample supplies and healthy inventory levels, prompting suppliers to lower base oil spot prices to stimulate sales and avoid excess stock. However, the recent surge in crude oil and feedstock prices encouraged some refiners to reconsider their operations and possibly focus more on diesel production. Furthermore, the slowing demand for base oils and diminished export opportunities in other regions also played a role in this decision. The upcoming weeks are crucial for refining decisions and whether the increasing crude oil prices will be mirrored in base oil values. Notably, certain base oil formulas, like those used in Japan, are tied to a crude oil price index, and fluctuations are typically reflected in base oil pricing in the subsequent quarter.
The steep rise in oil prices also spurred some buyers to enter the market to secure cargoes before a potential price hike. However, most transactions involved smaller quantities as consumers remained cautious about unexpected price fluctuations.
Base Oil Trends In China
Amidst abundant domestic supplies, China’s interest in importing base oil remained subdued, except for API Group I bright stock, which faced a structural shortage in the country. The majority of Chinese refineries were running at peak levels, leveraging discounted Russian crude oil imports to bolster their position in the refined products export market. Despite a less robust economic recovery, China continued to import significant quantities of crude oil, especially from Russia, as reflected in its customs data. Russian imports were consistently cheaper than those from other OPEC+ countries ever since the war in Ukraine began. For instance, at the end of 2022, Russian oil enjoyed a $9 per barrel discount compared to Saudi Arabian crude, and by June, the discount increased to $11 per barrel.
Although most Chinese base oil units were reported to be operating smoothly, the commencement of a new Group III facility, initially planned for the first half of the year, might face delays due to prevailing market economics. Additionally, a Group II base oils plant was scheduled for maintenance this month. Uncertainties surrounding lubricant demand in the coming months, amidst moderate economic growth and the introduction of a revised consumption tax on white oils, also contributed to the fluctuations in base oils demand in China.
Base Oil Trends In India
India’s base oils and lubricants consumption felt the impact of the monsoon rains and prevailing economic concerns. Despite a slight increase in buying interest due to the rise in crude oil and gasoil prices, risk-averse buyers were cautious and preferred securing smaller cargoes. This cautious approach stemmed from uncertainty surrounding the strength of demand at the end of the monsoon season in September.
To alleviate concerns about product shortages, expectations of several imported base oil cargoes arriving in India provided buyers with some reassurance. Local producers also played their part by running refineries at high capacity, capitalizing on discounted Russian crude oil. As a result, suppliers were able to offer competitive domestic pricing. However, South Korean and Taiwanese sellers remained cautious, as buying interest from other countries was slow, making them less eager to discuss shipments to India.
Base Oil Trends In Southeast Asia
As stated earlier, the resumption of production at various base oil facilities after scheduled turnarounds and unforeseen output disruptions this month is expected to align with a decline in base oil demand. This scenario provided suppliers with extra motivation to reduce prices on several base oil grades, with a particular focus on the heavy-viscosity cuts.
In Southeast Asia, a significant Group II plant located in Singapore has reportedly resumed operations following a maintenance program in June. Additionally, there were reports of another Southeast Asian plant experiencing unexpected production issues last week, but specific details were not readily available, and it seemed that there was no significant impact on the regional supply.
During the first week of July, a fire incident occurred at the Eneos Mizushima-A refinery in Northeast Asia, resulting in the producer having to suspend its operations temporarily. Nevertheless, reports suggested that the supplier anticipated resuming operations before the end of the month or in early August.
In 2022, Eneos Corp. made a noteworthy announcement about its future plans to manufacture biobased lubricants and greases using proprietary base oils derived from vegetables. The company aimed to achieve this milestone by 2023, contributing to the country’s efforts in mitigating carbon dioxide emissions and promoting a more sustainable future.
Base Oil Trends In Taiwan
In Taiwan, the exclusive Group II producer is making preparations to build up inventories to fulfill term requirements ahead of an upcoming turnaround scheduled for the fourth quarter. Normally, this producer extensively ships base oils to China. However, due to sluggish demand in the Chinese market, they have shifted their focus and concluded business with other destinations like India.
Base Oil Trends In South Korea
This week, a South Korean Group II and III plant was anticipated to recommence production, while another South Korean Group III producer reportedly decided to postpone its turnaround until either the first or second quarter of 2024. South Korean suppliers were actively focusing on finalizing export agreements to various destinations, including some distant ports in South America. For instance, discussions were ongoing for a 3,500-metric ton cargo to be shipped from Onsan to Rio de Janeiro, Brazil, in early August.
Base Oil price In Asia
Within Asia, several shipments were also in the works, including an estimated 2,700 tons expected to be sent from Onsan to Wakayama, Japan, during the current week. Additionally, a 3,300-ton lot was mentioned for lifting from Yeosu to Tanjung Priok, Indonesia, this month. Furthermore, a 1,000-ton parcel was under consideration for shipment from Onsan to Singapore in late July, and another similar parcel was quoted for transport from Onsan to Bangkok, Thailand, in mid-August.
Throughout this week, spot base oil prices in Asia witnessed a general downward trend due to softer market fundamentals, although certain price spreads remained stable. The following price ranges are a representation of discussions, bids, offers, deals, and widely recognized published prices that serve as benchmarks for the region.
Base Oil price In Asia
In Singapore, ex-tank prices showed a softer stance compared to the previous week. The Group I SN 150 grade experienced a decrease of $20/t, now ranging between $850/t and $880/t, while the SN500 also slipped by $20/t, settling at $920/t-$960/t. Additionally, the bright stock price fell by $30/t to $1,130/t-$1,170/t, all ex-tank in Singapore.
Moving to the Group II category, the 150 neutral grade was assessed at $900/t-$940/t, down by $20/t, and the 500N also registered a $20/t decrease, now ranging from $940/t to $980/t, ex-tank Singapore.
On an FOB Asia basis, the Group I SN150 remained unchanged at $700/t-$740/t, while the SN500 experienced a $20/t decline, reaching $780/t-$820/t. Bright stock prices slumped by $30/t, now standing at $860/t-$900/t, FOB Asia.
In the Group II segment, the 150N grade witnessed a decrease of $20/t, with an FOB Asia range of $770/t-$810/t, and both the 500N and 600N cuts experienced a similar decrease, now ranging from $820/t to $860/t, FOB Asia.
Within the Group III category, the 4 centiStoke price range experienced a decline due to heightened competition. The 4 cSt grade was assessed lower by $10/t, now ranging between $1,480/t and $1,510/t. However, the 6 cSt grade remained unchanged at $1,450/t-$1,490/t. Meanwhile, the 8 cSt grade held steady at $1,070/t-$1,110/t, FOB Asia, for fully approved products.
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