Brent crude December futures were trading at $89.57 per barrel on the London-based ICE Futures Europe exchange on Oct. 26, from $90.40/bbl on Oct. 19.

Dubai front month crude oil (Platts) financial futures for November settled at $89.97 per barrel on the CME on Oct. 25, from $90.95/bbl on Oct. 18.

While firm crude oil and fuel values were influencing refinery operations–with some refiners opting for producing more gasoil and less base oil given attractive margins–climbing base oil values over the last several weeks have once again given base oils some advantages.

Spot prices for most base oils have been on an upward trek because of a tight supply and demand scenario in Asia, coupled with high crude oil and feedstock prices. However, demand appeared to be softening in key markets such as China, following a burst of activity about two months ago.

Lubricant producers had procured base oils ahead of the National Day or Golden Week holidays in China in early October, as they were expecting lubricant consumption to pick up ahead of the holidays when millions of people prepare to reunite with family and take trips. Most of the requirements were met through domestic production of base oils, but some imports had also made their way to China because of a scarcity of certain grades such as API Group I bright stock.

Imports of other cuts were less prevalent, as domestic suppliers have lowered prices in order to compete against imports and entice buyers to secure more locally-produced barrels of base oils. Even so, a few cargoes were mentioned for shipment to China, with a 3,000-metric ton parcel expected to be lifted in Ulsan, South Korea, to Tianjin in the first week of November.

The Chinese government was hoping to reinvigorate some of the economic segments that have performed poorly in recent months, such as the construction and automotive segments, by reducing interest rates, removing restrictions on car and home purchases and investing in new infrastructure projects. Manufacturing activity was heard to have picked up the pace and lubricant demand from that sector has seen an uptick.

Group I spot cargoes in Southeast Asia were still limited and this condition has been driving prices up since late August. While prices were still moving up this week, the increases were much smaller as supplies were anticipated to grow and demand might potentially slow down in the coming weeks. A few consumers have also opted for buying Group II grades whenever possible as the price gap with Group I cuts has narrowed, particularly for South Korean Group II material. There were few large bulk cargoes of Group I base oils available, while flexibag-sized lots were more easily obtained but carried a premium.

Healthy domestic demand at origins like Indonesia, Thailand and Singapore had curbed export supplies and were expected to keep the Group I segment on the snug side.

Additionally, an extended turnaround at a Japanese Group I plant operated by Eneos and the permanent shutdown of another Eneos unit also contributed to the tightening of supplies in the region. Eneos followed through with its plan to shutter its Wakayama refinery–which houses a Group I plant–permanently in mid-October. Demand for refined products has steadily declined in Japan over the years and there was an increased emphasis on the production of sustainable fuels and lubricants. The worldwide rationalization of Group I plants has led to a chronic scarcity of Group I grades, many of which continue to be used in industrial lubricants, heavy-duty automotive, marine and railway oils and other applications.

Group II supplies were also somewhat restrained in Northeast Asia as the sole Taiwanese producer, Formosa Petrochemical, has idled operations at its Mailiao plant for a two-month maintenance program in mid-October. The producer was expected to have built inventories to cover contractual obligations. Spot cargoes from the producer, however, were mostly suspended. There was no direct producer confirmation about the turnaround details. Taiwan typically exports large volumes to China, but the turnaround has coincided with reduced demand from Chinese consumers, although term commitments were heard to continue being covered.

While base oil requirements in one central Asian market, China, remained lackluster, buying interest in another key country, India, has seen a revitalization as economic activities have picked up following a period of sluggish demand during the monsoon rains. Lubricant manufacturers were also preparing for heightened demand before the Diwali holidays in November.

With revived demand also came steeper base oil prices, with CFR India indications heard to have edged up by $5 per metric ton to $30/t week on week, depending on the cut. The lighter grades saw the heftier upward adjustments, as demand for these grades remained particularly robust.

Some domestic refiners have favored the production of distillates over that of base oils due to attractive margins and strong demand – especially of gasoil – which has led to leaner domestic availability of base stocks. Consumers were therefore seeking imports, with bids and offer prices edging up. There were also expectations that a domestic refiner would be starting Group III production in the fourth quarter, lifting some of the pressure for buyers to procure imported material.

There was mention of a 2,000-ton cargo for shipment from Thailand to West Coast India this month, and of a 7,000-ton lot to be lifted in Cartagena, Spain, for Mumbai in late October. About 8,000 to 9,000 tons were also discussed for shipment from Onsan, South Korea, to Mumbai around Oct. 25-26. A 5,500-ton lot was on the table for shipment from Pyongtaek, South Korea, to West Coast India in early November. An 8,000-ton cargo was also expected to be shipped from Haldia to Chennai earlier this week.

Base oil spot price assessments were steady to slightly firmer in Asia, depending on conditions in the different segments. 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 was steady at $830/t-$870/t, but the SN500 moved up by $10/t to $970/t-$1,010/t. Bright stock jumped by $30/t to $1,210/t-$1,250/t, all ex-tank Singapore.

Prices for the Group II 150 neutral were assessed higher by $10/t at $1,010/t-$1,040/t and the 500N was 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 $790/t-$830/t, but the SN500 remained firm at $890/t-$920/t. Bright stock prices were higher by $10/t at $1,010/t-1,050/t, FOB Asia on limited availability.

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

In the Group III segment, 4 centiStoke, 6 cSt and 8 cSt prices were largely unchanged this week. The 4 cSt was assessed at $1,290-$1,320/t, and the 6 cSt was at $1,260/t-$1,300/t. The 8 cSt grade was trading at $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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