In the recent scenario, market players in the base oil industry found some relief as crude oil futures decreased from their recent peaks. However, the market remained cautious due to the ongoing conflicts, including the Russian war on Ukraine and the Israel-Hamas conflict, which could potentially drive prices up based on developments in the coming weeks. Although higher crude oil prices do not immediately lead to increased base oil prices, they do impact refinery operations and put pressure on refined product prices. Suppliers kept a close eye on base oil consumption levels, which typically soften in the last quarter of the year.
Refinery operations were affected by firm crude oil and fuel values, leading some refiners to produce more gasoil and less base oil to capitalize on attractive margins. Despite this, rising base oil prices in recent weeks provided some advantages to base oil producers. Most base oil spot prices experienced an upward trend due to a tight supply and demand situation in Asia, coupled with high crude oil and feedstock prices. However, demand started softening in key markets like China, following a period of increased activity about two months ago.
Base Oil Trends In China
Lubricant producers had stocked up on base oils ahead of the National Day or Golden Week holidays in China in early October, anticipating higher lubricant consumption before the holidays, when millions of people travel to reunite with family. While most requirements were met through domestic base oil production, some imports were necessary due to a scarcity of certain grades, such as API Group I bright stock. Domestic suppliers reduced prices to compete against imports and encourage buyers to choose locally-produced base oils. Despite this, a few cargoes were expected to be shipped to China, including a 3,000-metric ton parcel set to be lifted in Ulsan, South Korea, and delivered to Tianjin in the first week of November.
The Chinese government aimed to revitalize underperforming economic sectors, including construction and automotive industries, by implementing measures such as interest rate reductions, the removal of purchasing restrictions for cars and homes, and investments in new infrastructure projects. This strategy resulted in an increased pace of manufacturing activity and a corresponding uptick in lubricant demand within the sector.
Base Oil Trends In in Southeast Asia
In Southeast Asia, the availability of Group I spot cargoes remained limited, leading to a steady rise in prices since late August. While prices continued to climb this week, the rate of increase was more modest as expectations of supply growth and potential future demand slowdown tempered the market. Some consumers began favoring Group II grades when feasible, as the price gap between Group I and Group II cuts, particularly South Korean Group II material, narrowed. Large bulk cargoes of Group I base oils were scarce, with flexibag-sized lots being more readily available but at a premium.
Strong domestic demand in countries like Indonesia, Thailand, and Singapore limited export supplies and maintained tight conditions in the Group I segment. Additionally, the extended turnaround at a Japanese Group I plant operated by Eneos and the permanent closure of another Eneos unit contributed to supply constraints in the region. Eneos followed through with its plan to permanently shut down its Wakayama refinery, which housed a Group I plant, in mid-October. The decline in demand for refined products in Japan, with a greater emphasis on sustainable fuels and lubricants, further exacerbated the scarcity of Group I grades. These grades are essential in various applications, including industrial lubricants, heavy-duty automotive, marine, railway oils, and more.
Base Oil Trends In in Northeast Asia
In Northeast Asia, Group II supplies also faced limitations as the sole Taiwanese producer, Formosa Petrochemical, initiated a two-month maintenance program at its Mailiao plant in mid-October. While the producer was expected to build inventories to fulfill contractual obligations, spot cargoes from the producer were largely suspended. Although the turnaround coincided with reduced demand from Chinese consumers, term commitments continued to be fulfilled, even in the face of limited supply.
Base Oil Trends In in India
While base oil demand in one central Asian market, namely China, remained subdued, there has been a resurgence in buying interest in another significant country, India. This revival in India’s buying activity is attributed to the pickup in economic activities after a period of sluggish demand during the monsoon season. Lubricant manufacturers are also gearing up for increased demand ahead of the Diwali holidays in November.
The revitalized demand has led to an upward trajectory in base oil prices. Indications for CFR India have reportedly increased by $5 per metric ton, reaching up to $30/t on a week-to-week basis, with the extent of the increase varying based on the specific grade. The lighter base oil grades witnessed more substantial price hikes, reflecting the robust demand for these particular cuts.
Some domestic refiners in India have favored distillate production over base oils due to attractive profit margins and robust demand, especially for gasoil. This shift has resulted in relatively lean domestic availability of base stocks, prompting consumers to turn to imports. As a consequence, bid and offer prices have been on the rise. Additionally, there are expectations that a domestic refiner will commence Group III base oil production in the fourth quarter, which could alleviate some of the pressure on buyers to procure imported material.
Recent shipping arrangements included a 2,000-ton cargo from Thailand to the West Coast of India this month and a 7,000-ton shipment from Cartagena, Spain, to Mumbai in late October. Discussions also revolved around an 8,000 to 9,000-ton shipment from Onsan, South Korea, to Mumbai around October 25-26, as well as a 5,500-ton shipment from Pyongtaek, South Korea, to the West Coast of India in early November. An 8,000-ton cargo was also scheduled for shipping from Haldia to Chennai earlier this week.
Base Oil price In Asia
Base oil spot price assessments in Asia have remained steady to slightly firmer, contingent on market conditions within different segments. The price ranges below represent the culmination of discussions, bids, offers, deals, and widely recognized published prices that serve as benchmarks for the region.
Ex-tank Singapore prices have exhibited stability to firmness compared to the previous week. For instance, the Group I SN 150 grade remained steady at $830/t-$870/t, whereas the SN500 grade rose by $10/t to $970/t-$1,010/t. Bright stock prices surged by $30/t to $1,210/t-$1,250/t, all ex-tank Singapore.
Prices for the Group II 150 neutral saw an increase of $10/t, reaching $1,010/t-$1,040/t, while the 500N grade remained steady at $1,050/t-$1,090/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 prices climbed by $20/t to $790/t-$830/t, while the SN500 prices remained firm at $890/t-$920/t. Bright stock prices increased by $10/t to $1,010/t-$1,050/t, reflecting limited availability on an FOB Asia basis.
In the Group II segment, prices for the 150N grade were hovering at $890/t-$920/t FOB Asia, and the 500N grade remained steady at $930/t-$960/t, also on an FOB Asia basis.
Within the Group III segment, prices for the 4 centiStoke, 6 cSt, and 8 cSt grades remained largely unchanged for the week. The 4 cSt grade was assessed at $1,290-$1,320/t, the 6 cSt grade at $1,260/t-$1,300/t, and the 8 cSt grade was trading at $990-$1,030/t. All of these price indications are for fully approved products on an FOB Asia basis.
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