Weekly Asia Base Oil Report: 22 – 28 July 2023

Amidst fluctuating prices and uncertain demand projections for lubricants, base oil consumers hesitated to acquire large shipments. Many blenders opted to run their plants with just enough product to sustain daily operations due to the prevailing uncertainties. However, in some regions, there was a noticeable increase in orders, triggered by rising crude oil and feedstock prices. Participants rushed to secure base stocks in anticipation of potential price fluctuations. Despite this, the downward price trend that had been observed in recent weeks seemed to have reached a plateau for certain grades, attributed to more balanced market fundamentals.

Meanwhile, crude oil prices continued their upward trajectory, driven by expectations of tightened supplies. OPEC+ members and allies had implemented production curbs, and China’s robust demand further contributed to the tightening market conditions. As the world’s largest crude oil importer, China had been benefiting from discounted prices offered by Russia, one of its major oil suppliers. This arrangement had persisted since the beginning of the Russian war on Ukraine, taking advantage of international sanctions on Russian exports.

Oil futures experienced a slight uptick on Thursday, with Brent crude surging above the $84 per barrel mark for the first time since April. This increase was driven by supply constraints resulting from OPEC+ production cuts and renewed optimism surrounding Chinese demand and global economic growth, as reported by Reuters.

As of July 27, Brent crude September futures were valued at $83.91 per barrel on the ICE Futures Europe exchange in London, showing a rise from $79.72/bbl recorded on July 20.

Similarly, Dubai front month crude oil (Platts) financial futures for August settled at $83.12 per barrel on the CME on July 26, compared to $79.84/bbl on July 19.

Base Oil Trends In China

In the Chinese market, the demand for imported base oils remained subdued, primarily due to the country’s economic recovery being weaker than initially anticipated. However, there was an exception observed in the case of bright stock, as China faced a shortage of this particular grade. Consequently, there was substantial demand for bright stock in various industrial, marine, and other applications. To meet this demand, reports indicated that several cargoes were procured from Southeast Asia, a crucial source of API Group I base oils for the region.

Importers refrained from acquiring significant amounts of imports since there was an abundant domestic supply available. Furthermore, there were expectations that some plants might consider reducing their operating rates or temporarily halt production to avoid an excessive product surplus. Notably, a few Chinese plants were reported to have already shut down or operated at reduced rates due to market economics. Additionally, the commencement of a new Group III unit had to be postponed due to similar reasons.

Base Oil Trends In South Korea

On the other hand, there has been a notable return to operations for several plants after undergoing turnarounds in various regions across Asia. Among these facilities are two significant Group III units – one located in Onsan, South Korea, which also produces Group II, and another situated in Cartagena, Spain. This resurgence in production led to optimistic expectations of increased supplies becoming available in the market.

Interestingly, news emerged that a second South Korean Group III producer had decided to postpone its planned turnaround until either the first or second quarter of 2024.

Anticipating the influx of additional products into the market, South Korean suppliers eagerly engaged in export transactions with various ports, including distant locations like Brazil. The demand for base oil imports in Brazil had picked up due to upcoming turnarounds at a couple of large plants. Specifically, a cargo weighing 3,500 metric tons was reported to have been concluded for shipment from Onsan to Rio de Janeiro, Brazil, scheduled for early August. Additionally, a 1,000-ton lot was expected to be shipped from Onsan to Singapore in the last week of July, while a 1,300-ton parcel was quoted for shipment from Onsan to Bangkok, Thailand, in mid-August.

Base Oil Trends In Japan

In Japan, the Eneos Mizushima-A refinery encountered a fire in early July, compelling the producer to halt its operations temporarily. However, reports indicated that the unit was expected to resume production before the end of the month or early August. On a different note, a Group I facility in Japan was scheduled for permanent closure around September or October of the current year.

Base Oil Trends In India

Meanwhile, in India, the majority of refineries were operating at peak rates, and many buyers were relying on domestic term contracts to fulfill their base oil requirements. The buying interest was as expected, considering the country’s ongoing monsoon rains, which typically lead to logistical and transportation disruptions, along with a slowdown in economic activities like construction.

Despite these factors, there was a noticeable increase in purchasing activities over the past two weeks. This could be attributed to the anticipation that the downward price trend might reverse if crude oil and feedstock costs continued to strengthen. Indian refiners were also benefiting from discounted Russian crude oil, adding to the buying incentive. However, the recent demand upswing seemed to have subsided, with buyers preferring to maintain lean inventories, particularly since most grades were readily available in the market.

Base Oil Trends In Southeast Asia

In August, a considerable number of Group I cargoes from Southeast Asia have been successfully secured for shipment to India. This development has led to a tightening of regional Group I supplies and has had a supportive impact on price indications in the market. Furthermore, India has been an attractive destination for several Group II cargoes over the past few weeks, with some originating from the United States and South Korea. To attract buyers and reduce inventories, suppliers have adjusted prices downward.

Base Oil Trends In Taiwan

However, spot shipments from Taiwan are not anticipated to be prominent in the coming months. This is because the sole Group II producer in Taiwan is reportedly building up inventories ahead of a scheduled turnaround in October. Additionally, its feedstock supply has been limited due to the base oils plant’s reduced operating rates over the last two months.

Base Oil price In Asia

The market is also expected to see increased Group III availability from South Korea and the Middle East. Simultaneously, weaker Group III demand in the United States and Europe may lead to a surplus of product in these regions, potentially exerting downward pressure on pricing.

Certain base oil grades experienced a marginal tightening in the region, resulting in spot prices maintaining a stable trajectory. However, other grades underwent downward adjustments as suppliers reduced their offer levels, aiming to stimulate trading activity. The price ranges provided below encompass discussions, bids, offers, deals, and published prices, widely regarded as benchmarks for the region.

Ex-tank prices in Singapore remained steady to softer compared to a week ago. The Group I solvent neutral 150 grade saw a decrease of $20/t, now ranging from $830/t to $860/t. On the other hand, the SN500 grade held firm at $920/t to $960/t. Meanwhile, bright stock experienced a decline of $30/t, reaching $1,100/t to $1,140/t, all ex-tank in Singapore.

For Group II base oils, the 150 neutral grade was assessed as steady at $900/t to $940/t, while the 500N grade saw a decrease of $10/t, now at $930/t to $970/t, ex-tank in Singapore.

Moving to an FOB Asia basis, Group I SN150 grade softened by $20/t, now priced at $680/t to $720/t, and the SN500 grade also decreased by $20/t, now ranging from $760/t to $800/t. Bright stock prices fell by $20/t, amounting to $840/t to $880/t, FOB Asia.

The Group II 150N grade remained unchanged at $770/t to $810/t, FOB Asia, while the 500N and 600N cuts slipped by $10/t, now at $810/t to $850/t, FOB Asia.

In the Group III segment, prices were softer due to increased availability and competitive pricing. The 4 centiStoke grade saw a decrease of $10/t, now priced at $1,470 to $1,500/t, and the 6 cSt grade experienced a drop of $20/t, reaching $1,430/t to $1,470/t. Additionally, the 8 cSt grade edged down by $10/t, now at $1,060 to $1,100/t, FOB Asia, for fully approved products.