Asia Base Oil Price Report

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Slowing demand and the resumption of output at a number of base oil facilities led to mounting supplies in Asia, with spot prices exposed to downward pressure and suppliers looking for alternative product outlets to reduce domestic inventories. Most plants were running at close to top rates as diesel margins have declined, prompting refiners to stream feedstocks into base oil production instead of distillates.

Market sources said that producers had lowered domestic prices and spot offers as a first step towards achieving a more balanced supply and demand situation. In some cases, this strategy seemed to have worked as buyers have secured fresh cargoes, but many still preferred to take their maximum allotments through term contracts and avoid spot market volatility. However, in some cases, spot offers were more competitive than contract prices, which made consumers reevaluate their purchase ratios.

One of the leading causes for the more subdued buying activity in Asia was a slowdown in the key consumer markets China and India. Following a fairly busy spring season in China and a buying spurt in India ahead of the monsoon season, blenders appeared to be well-stocked and have shown less interest in additional volumes. Lubricant suppliers were focusing on reducing inventories instead of building them, with macroeconomic uncertainties underlying some of these decisions.

In China, more subdued economic activity than expected has turned consumers cautious and many preferred to use up existing base oil and lubricant inventories rather than acquire fresh cargoes. There was also some uncertainty stemming from a newly revised consumption tax on white oils, which made these products more expensive in the domestic market. The faster pace of vehicle electrification in China was also causing traditional base oil and lubricant manufacturers to explore new niches and opportunities. In many cases, this led to reduced demand for certain base oil grades.

Chinese industrial output has also been below anticipated levels, resulting in weaker consumption of the heavier base oils for industrial applications. China’s industrial production grew by 3.5% year-on-year in May 2023, easing from a 5.6% rise in April and slightly less than market forecasts of 3.6%, according to Trading Economics.com. It was the 13th straight month of growth in industrial output but the softest pace in three months, mainly due to a slowdown in manufacturing activity – 4.1% vs 6.5% in April – and a decline in mining production.

In India, base oils demand remained sluggish due to the impact of the monsoon rains and disruptions in the logistical, transportation and construction segments, along with the fact that consumers had built inventories ahead of the adverse weather and many were encountering credit limitations as well. There were also expectations of the arrival of several import shipments over the next few weeks, which lifted the pressure on buyers to jump on the first cargo that was offered to them. Domestic suppliers have lowered prices as local inventories rose, partly due to the fact that refineries were running at full tilt to take advantage of discounted Russian crude oil.

The lower regional base oil consumption levels in Asia will coincide with the restart of production at several base oil facilities following turnarounds this month, which should bring more product into the market. Additionally, there were reports that a number of suppliers who are not traditionally active in the merchant market in Asia had offered spot cargoes, some in flexibags, to reduce inventories at home.

In Southeast Asia, political turmoil in Thailand over the Prime Minister’s election may affect activity in the country in the coming days. Thai base oil production was said to be stable and several API Group I cargoes have been offered for spot business, with plentiful supplies exerting pressure on pricing. A large Group II plant in Singapore has reportedly been restarted after a maintenance program in June, which means that additional cargoes have become available in the region.

In Northeast Asia, a Japanese refiner was reported to have started a two-month turnaround at its Group I refinery in late May and was expected to resume production this month. A second Japanese supplier started a turnaround in April and was likely to have completed it in late June, but further details were unavailable. A smaller Japanese unit was slated to be partially shut down in late August. A Group I facility in Japan was also scheduled for permanent closure around September of this year.

The sole Taiwanese Group II producer was heard to be building inventories to cover term requirements during an upcoming turnaround in the fourth quarter. The supplier typically ships considerable volumes to China but has instead diverted some of its shipments to other destinations given lackluster Chinese demand.

A Chinese Group II plant was also heard to be starting a turnaround this month, which should put the plant out of commission for about three weeks, while a second Group II unit was anticipated to be restarted before the end of the month, following a two-month maintenance program, although quite often, Chinese plants’ restarts get delayed because of weaker market economics.

A South Korean Group II and III plant was expected to resume production this month, with more supplies from the unit expected to become available in the coming weeks. A large South Korean Group III producer was heard to have postponed its turnaround until the first or second quarter of 2024.

South Korean suppliers were in the midst of discussions for late July/August shipments, with several small cargoes being quoted, including a 1,000-metric ton lot for loading in Onsan and discharge in Singapore at the end of July.

Also, a 1,300-ton parcel was expected to be shipped from Onsan to Bangkok, Thailand, in mid-August. About 3,000 tons were expected to ship from Onsan to Wakayama, Japan, next week as well.

Spot base oil price assessments in Asia were steady-to-lower this week, with prices for some grades moving down due to softer fundamentals. The price ranges portrayed below reflect discussions, bids and offers, as well as deals and published prices widely regarded as benchmarks for the region.

Ex-tank Singapore prices were steady to softer. The Group I solvent neutral 150 grade was assessed at $870/t-$900/t, unchanged from last week, but the SN500 slipped by $20/t to $940/t-$980/t. Bright stock tumbled by $30/t to $1,160/t-$1,200/t, all ex-tank Singapore.

Prices for the Group II 150 neutral were assessed down by $20/t at $920/t-$960/t, and the 500N was also lower by $20/t at $960/t-$1,000/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was unchanged at $700/t-$740/t, but the SN500 was down by $10/t at $800/t-$840/t. Bright stock prices fell by $30/t to $890/t-930/t, FOB Asia.

The Group II 150N was assessed down by $10/t at $790/t-$830/t FOB Asia, and the 500N and 600N cuts also slipped by $10/t to $840/t-$880/t, FOB Asia.

In the Group III segment, some ranges edged down on increasing competition. The 4 cSt was assessed unchanged at $1,490-$1,520/t, but the 6 cSt was down by $10/t at $1,450/t-$1,490/t. The 8 cSt grade was also adjusted down by $10/t to $1,070-1,110/t, FOB Asia, for fully approved product.

Upstream, crude oil futures have strengthened from a week ago on expectations that Saudi Arabia would extend its oil production cuts to prop up crude oil prices, while Russia has also reduced its crude oil production and exports.

According to CNN Business.com, the price of Russian crude oil has risen above a price cap stipulated by the Group of Seven nations, testing whether the West can enforce one of its key sanctions against Russia. The benchmark price of Russian Urals crude breached $60 per barrel on Wednesday, about eight months after the G7 and the European Union introduced the cap, preventing Western firms from providing shipping, insurance and other services needed to export Russian seaborne oil unless it is priced below the threshold.

Also on Wednesday, oil prices settled higher, with benchmark Brent futures jumping over the $80/bbl mark for the first time since May, after U.S. inflation data fueled hopes that the U.S. Federal Reserve would announce fewer interest rate hikes in the coming months and reduced fears of a recession.

On July 13, Brent crude Septemberfutures were trading at $81.65 per barrel on the London-based ICE Futures Europe exchange, from $76.57/bbl on July 6.

Dubai front month crude oil (Platts) financial futures for August settled at $80.94 per barrel on the CME on July 12, from $76.11/bbl on July 5.

Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com. 

Lubes’n’Greases shall not be liable for commercial decisions based on the contents of this report.

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