Much attention was focused on U.S. President Joe Biden’s visit to the Middle East this week. Biden has the almost insurmountable task of showing support for Israel while at the same time securing aid for Gaza and Arab states’ cooperation to assuage tensions in the region.

Brent crude December futures were trading at $90.40 per barrel on the London-based ICE Futures Europe exchange on Oct. 19, from $86.64/bbl on Oct. 12.

Dubai front month crude oil (Platts) financial futures for November settled at $90.95 per barrel on the CME on Oct. 18, from $85.11/bbl on Oct. 11.

A number of base oils, namely within the API Group I and Group II segments, have shown a snug supply and demand ratio since August and this condition, together with firm crude oil and feedstock prices, have led to a steady upward price trek.

The tight supply situation had been exacerbated by ongoing plant turnarounds and refiners prioritizing gasoil output over base oils as margins were more attractive and there was a global deficit of gasoil supplies. The shortages had been precipitated by the temporary ban on Russian distillates and robust demand. However, China was anticipated to step in and bring some relief by exporting more distillates before the end of the year.

The Chinese economy seemed to be regaining momentum, after dragging during the first half of the year, despite expectations of a strong recovery on the back of three years of COVID-related restrictions. “The recovery fizzled out in the April to June months amid weak consumer spending, a persistent slump in real estate and muted global demand for its manufactured goods,” CNN.com reported. Beijing has increased its efforts to reignite growth, including slashing interest rates, removing restrictions on car and home purchases, investing in infrastructure projects and relaxing capital controls to entice foreign investment, the CNN article added.

The lusterless economic situation had also impacted the base oils and lubricants sector, as industrial performance had been disappointing, and the automotive industry was focusing on electrification, reducing demand for conventional lubricants. Base oil buyers had been able to meet most of their requirements through domestic production and import volumes had fallen.

However, buying interest for some imports, particularly for the heavier cuts such as bright stock, which is structurally short in China, has picked up over the last few days as industrial and transportation activities appeared to be revving up. Imports of other cuts were less attractive, as domestic suppliers have slashed prices in order to maintain their competitive edge and encourage additional purchases.

Even so, there were a number of spot cargoes being discussed for shipment from South Korea to China, with about 2,000 metric tons expected to be lifted in Yeosu to Tianjin in mid-October and 1,600 tons from Onsan to Tianjin at the end of October. A second cargo of about 1,000 tons was quoted for shipment from Onsan to Tianjin this month. A 6,150-ton lot was also mentioned for shipment from Singapore to China in late October. A 2,200-ton cargo was quoted for lifting in Onsan to Huizhou the first week of November.

Strained availability of Group I spot cargoes in Southeast Asia continued to drive prices up, although the upward momentum seemed to be slowing. While tight supplies were still exerting upward pressure on pricing, expectations of increased spot volumes coming to the market in the coming weeks against softening demand capped the upward price movement. Bulk shipments were still hard to come by, while smaller cargoes in flexibags originating in Southeast Asia were more readily available, but at a premium.

An extended turnaround at a Japanese Group I plant and the permanent shutdown of another Japanese unit this month have also contributed to the tightening of supplies.

The Group II segment was also fairly snug, as the Taiwanese Group II producer Formosa Petrochemical has embarked on a turnaround and South Korean suppliers have been able to finalize several transactions for October shipment. Just like in the Group I segment, softening demand was partly offsetting the reduced availability.

Formosa Petrochemical was heard to have idled its Group II plant in Mailiao for a two-month turnaround, starting in mid-October, but was expected to have built inventories to cover most contractual obligations. Spot cargoes, however, have been restricted. There was no direct producer confirmation about the turnaround details.

Formosa regularly ships large volumes to China and other destinations within Asia such as India. Indian buying appetite for base oils has grown following the end of the monsoon season and ahead of the Diwali holiday in November, with CFR indications moving up by $10 per ton to $30/t from the previous week. The heavier grades were subject to the steeper markups. Even offers for the Group III grades, which were under downward pressure in other parts of the region, were edging up in India.

A number of South Korean cargoes were expected to be lifted this month and the next for delivery in India, including 7,000 metric tons for shipment from Ulsan to Mumbai around Oct. 26 and about 35,000 metric tons from Yeosu to Kandla and Mumbai in mid-November. A 4,000-ton to 5,000-ton parcel was on the table for shipment from Daesan or Pyontaek to Chennai in mid-November.

The Group III segment continued to lengthen in Asia, with suppliers offering competitive prices as they were eager to maintain market share or capture new accounts, particularly within Southeast Asia and India. Most Asian plants were running well, and additional cargoes have been made available, offering many options to blenders. Stricter automotive emissions and fuel efficiency requirements were expected to increase the need to use more Group III base oils in automotive lubricants, especially as their premium over Group II alternatives has narrowed.

Base oil spot price assessments were steady to firm in Asia this week, with prices for a number of grades moving up and others remaining unchanged. 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 firm from the previous week. The Group I solvent neutral 150 grade inched up by $10/t to $830/t-$870/t, and the SN500 moved up by $20/t to $960/t-$1,000/t. Bright stock jumped by $50/t to $1,180/t-$1,220/t, all ex-tank Singapore.

Prices for the Group II 150 neutral were assessed unchanged at $1,000/t-$1,030/t and the 500N was also steady at $1,050/t-$1,090/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was higher by $20/t at $770/t-$810/t, but the SN500 remained firm at $890/t-$920/t. Bright stock prices were higher by $20-30/t at $1,000/t-1,040/t, FOB Asia on limited availability.

The Group II 150N was hovering at $890/t-$920/t FOB Asia, and the 500N was also unchanged at $930/t-$960/t, FOB Asia.

In the Group III segment, 4 centiStoke, 6 cSt and 8 cSt prices were losing ground on account of the growing supplies. The 4 cSt was assessed lower by $30/t at $1,290-$1,320/t, and the 6 cSt was also down by $30/t at $1,260/t-$1,300/t. The 8 cSt grade fell by $40/t to $990-1,030/t. All indications are FOB Asia for fully approved product.

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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