The base oil market in Asia is experiencing downward pressure on prices due to slowing demand. However, the impact of this trend could be mitigated by ongoing and upcoming turnarounds, which are expected to tighten supply in the region. Economic uncertainties and healthy lubricant inventories have contributed to the dampening of base oil consumption. Furthermore, buyers’ decision to delay orders has worsened the situation. Softening crude oil and feedstock values have also influenced the bearish market sentiment, prompting base oil suppliers to lower their offers in order to stimulate sales.
Crude Oil Prices Respond to Developments
Meanwhile, crude oil prices have been weighed down by concerns of a potential global economic recession. However, there is optimism that OPEC+ will take action to reduce crude output, leading to tighter market conditions. This expectation is particularly fueled by the strengthening Chinese demand. These combined factors contribute to a complex landscape in the base oil and crude oil markets, with both challenges and potential opportunities ahead.
Crude oil futures experienced a slight increase on Thursday morning following positive developments in the United States. The passage of a debt ceiling bill by the House of Representatives eased concerns about a potential historic default by the largest oil consumer in the world. Additionally, expectations were high that OPEC+ would maintain its output quota during the upcoming meeting, further supporting prices.
As of June 1, Brent August futures were being traded at $72.87 per barrel on the ICE Futures Europe exchange in London. This reflected a decrease from the previous price of $76.95 per barrel for July futures on May 25.
Similarly, Dubai front month crude oil (Platts) financial futures for July settled at $70.77 per barrel on the CME on May 31. This marked a decline from the previous price of $76.78 per barrel for June futures on May 24.
Base Oil Trends In India
Market participants in the base oil industry were closely monitoring the supply dynamics not only in Asia but also in other regions, as tighter conditions elsewhere could divert barrels away from Asia. Conversely, an oversupply situation in areas like the United States could lead to a surge of competitively priced cargoes entering the region in the coming weeks, potentially putting downward pressure on prices. India, in particular, appeared to be vulnerable to the impact of excessive imports, especially as it enters the monsoon season characterized by logistical and transportation disruptions as well as weaker base oil demand. This would coincide with high operating rates at local base oil plants, driven by favorable base stock margins relative to gasoil.
Several U.S. export shipments to India had either been decided upon or were being considered, despite low levels of consumption. Despite a large U.S. API Group II base oil plant’s impending turnaround, which is planned to last for the most of June, it was claimed that at least two other suppliers were able to provide additional Group II availability. There were several U.S. shipments scheduled to arrive in June, July, and August.
Anticipations were high for increased cargo arrivals to India from South Korea, Southeast Asia, Europe, and the Middle East in the upcoming weeks. The availability of ample supply options exerted a downward force on base oil prices in the Indian market, resulting in weekly declines ranging from $20/t to $30/t, depending on the specific grade. Group I supplies experienced the most significant decreases. The presence of competitive offers for Group I grades from local producers further contributed to the decline in prices.
In mid-May, there were reports of an 8,000-metric ton cargo that had been dispatched from Cartagena, Spain, to Mumbai. Another 8,000-ton shipment, comprising two grades, was expected to be loaded in Rayong, Thailand, and discharged in Mumbai, Hazira, or Kandla by the end of May. In the first half of June, it was anticipated that approximately 1,500 to 2,000 tons would be lifted in Malacca, Malaysia, destined for the West Coast of India. During the period of June 20-25, between 8,000 and 12,000 tons were mentioned for shipment from Daesan and/or Pyongtaek, South Korea, to the West Coast of India.
Furthermore, a 5,000-ton cargo was quoted for shipment from Pyongtaek to Mumbai in the first week of June, followed by a second parcel of 3,000 tons quoted for lifting in Daesan or Pyongtaek to the West Coast of India in mid or late June.
Additionally, a 2,500-ton cargo was quoted for shipment from Yeosu, South Korea, to Mumbai during June 10-20. Towards the end of June, it was expected that a 10,000-ton cargo, consisting of three or four base oil grades, would be loaded in Yeosu, South Korea, as well as Rayong and Sri Racha, Thailand, bound for the West Coast of India and Jebel Ali, Dubai, in the United Arab Emirates. Lastly, discussions were underway for a potential shipment of about 13,000 tons from Yanbu and Jeddah, Saudi Arabia, to Mumbai and Singapore in late June.
Base Oil Trends In China
In China, local producers were faced with high inventories, leading them to offer cargoes at competitive prices, which deterred most import activities. The market experienced an oversupply of certain Group I grades, as well as light-viscosity cuts of Group II. Consequently, imports of Group I base oils from Indonesia, Thailand, and Singapore were discouraged. Although a few major Chinese Group II plants were scheduled to resume operations last month after planned shutdowns, some units were running at reduced rates due to market dynamics, contributing to the prevailing oversupply situation.
Additionally, there were expectations of a 3,000-ton cargo to be transported from Antwerp, Belgium, to Nantong, with the delivery set for mid-August. Furthermore, several export transactions were recently concluded, including a 6,000-ton shipment consisting of base oils and specialty chemicals from Maoming and Qingdao to Mumbai and Kandla, India, scheduled for mid-June.
Despite the slow pace of China’s anticipated economic recovery following the easing of COVID-19 restrictions, there has been a positive development in the automotive sector. Automotive sales have shown an upward trend in April, indicating an improvement. According to data from the China Association of Automobile Manufacturers, vehicle sales in China recorded a remarkable 83% year-on-year surge to 2.2 million in April 2023, following a 10% increase in the previous month. This substantial growth can be attributed to a favorable comparison with the low base of April last year when the country was under strict COVID-19 lockdown measures. The surge in auto sales has the potential to drive an increase in lubricant demand from original equipment manufacturers (OEMs).
Base Oil Trends In Asia
In other parts of Asia, the upcoming months are expected to be marked by a busy schedule of plant turnarounds. Producers are actively building inventories to fulfill their obligations during these shutdown periods and, as a result, spot supplies are being limited. Concurrently, these turnarounds are expected to coincide with a seasonal slowdown in demand across most regions.
Base Oil Trends In Southeast Asia
In Northeast Asia, a major producer of Group II and Group III base oils in South Korea has planned an extensive turnaround, set to commence in late May. As a result, shipments to the United States have been constrained, primarily due to robust European demand for Group III grades driven by a turnaround at a local Group III facility. Consequently, some cargoes have been redirected to meet the European demand.
Aside from the shipments destined for India, discussions have taken place regarding several base oil exports from South Korea this week. It has been reported that a few shipments are bound for the Americas, specifically the U.S. Gulf region and the Middle East. Among the proposed shipments is a 2,700-ton cargo slated for transportation from Yeosu to Koh Sichang, Thailand, in late June. Additionally, a 1,000-ton parcel is expected to have been loaded in Daesan for delivery to Hamriyah, United Arab Emirates, during the last week of May.
In late May, a Japanese refiner was set to commence a two-month turnaround at its refinery, which is expected to impact the production of Group I base oil and limit supply from the producer. Another Japanese producer had already initiated a turnaround in April, with its completion anticipated in June, affecting Group II output.
Meanwhile, the only Taiwanese Group II producer was projected to conduct refinery maintenance during June and July, but this maintenance was not foreseen to significantly affect base oil production. However, the same producer had scheduled a turnaround at its base oils plant in October and was expected to begin building inventories prior to the shutdown, leading to limited spot sales. Currently, it was reported that the supplier had plans to ship substantial quantities of base oils to China and other destinations in Asia this month, including India.
Base Oil Trends In Southeast Asia
In Southeast Asia, a major facility in Singapore underwent maintenance on some of its base oil trains from the end of April until late June, mainly impacting Group II supply. To compensate for the local production, several cargoes have been shipped from other origins in Southeast Asia and the Middle East to Singapore in recent weeks. One such shipment, a 500-ton lot, was expected to be transported from Malacca, Malaysia, to Singapore by the end of May. Additionally, Singapore was involved in exporting approximately 8,000 tons of base oils to Godau, Nhabe, and Haiphong in Vietnam during the first week of June. Another cargo of 3,000 tons was mentioned for shipment from Rayong, Thailand, to Merak, Indonesia, in mid-June.
The reduced availability of Group I base stocks, particularly bright stock, due to recent maintenance and unplanned outages at a couple of Indonesian plants, has led to the importation of some cargoes from Singapore.
This week, spot base oil prices in Asia showed a steady-to-soft trend, with adjustments in buying and selling indications for certain grades due to changing supply and demand dynamics. The price ranges provided below encompass discussions, bids, offers, deals, and widely recognized published prices considered as benchmarks in the region.
Base Oil price In Asia
Ex-tank prices in Singapore remained steady or slightly decreased compared to the previous week. The Group I sn150 base oil grade saw a $10/t decrease, ranging from $910/t to $940/t, while the sn 500 grade remained unchanged at $1,020/t to $1,060/t. Bright stock prices were in the range of $1,260/t to $1,300/t, all ex-tank in Singapore.
For Group II, the 150 neutral grade was assessed as steady, ranging from $1,010/t to $1,050/t, while the 500N grade was priced at $1,040/t to $1,090/t, both ex-tank in Singapore.
On an FOB Asia basis, Group I SN150 experienced a $20/t decrease, ranging from $720/t to $760/t, while the SN500 grade saw a $10/t decrease, ranging from $860/t to $900/t. Bright stock prices declined by $20/t to $980/t to $1,020/t, FOB Asia.
The Group II 150N grade was slightly lower, ranging from $880/t to $920/t, FOB Asia, while the 500N and 600N cuts also saw a $10/t decrease, ranging from $920/t to $960/t, FOB Asia.
In the Group III segment, prices remained steady. The 4 cSt grade was priced between $1,520/t and $1,550/t, while the 6 cSt grade remained unchanged at $1,490/t to $1,530/t. The 8 cSt grade was reported at $1,110/t to $1,150/t, FOB Asia, for fully approved products.
|SN 150||SN 500||Base Stocks||N 150||N 500|