However, the risk that the conflict would spread to other areas in the Middle East persisted, which would likely impact crude oil prices. Fears continued to mount as Iran-backed Houthi rebels in Yemen claimed responsibility for missile and drone attacks targeting a Red Sea shipping port in southern Israel on Tuesday, with the Israeli military thwarting the attack. 

Oil prices edged higher in early trade on Thursday on investors’ concerns that the conflict in the Middle East could disrupt oil supplies and lead to shortages.

Iran’s Supreme Leader, Ayatollah Ali Khamenei, has already called on Muslim states to halt oil and food exports to Israel, demanding an end to its bombardment of the Gaza Strip, state media reported. Meanwhile, Israeli forces claimed to have killed another Hamas commander in Gaza on Wednesday.

Brent crude January 2024 futures were trading at $85.36 per barrel on the London-based ICE Futures Europe exchange on Nov. 2, from $89.57/bbl for December futures on Oct. 26.

Dubai front month crude oil (Platts) financial futures for December settled at $84.34 per barrel on the CME on Nov. 1, from $89.97/bbl for November futures on Oct. 25.

Crude oil and gasoil prices influence refiners’ decisions on whether to produce more middle distillates such as gasoil versus base oils–which share the same feedstock stream–or whether to increase base oil output. Since gasoil margins had been more attractive in recent months, base oil plant operating rates had been adjusted accordingly. This was one of the factors impacting base oil supply levels in Asia, leading to a tightening of certain grades and to higher spot offers from most suppliers.

Permanent Group I plant shutdowns in recent years resulted in fewer sources of API Group I base oils, with the latest decommissioning taking place at an Eneos plant in Japan in mid-October. Steady domestic demand in Group I producer countries in Southeast Asia, such as Thailand and Indonesia, also left fewer cargoes for export transactions, but there was some extra availability of Group II grades which were offered through tenders.

An ongoing turnaround at the sole Taiwanese API Group II plant operated by Formosa Petrochemical has contributed to the tightening of Group II grades. The producer was heard to have built inventories to cover most term requirements during the outage. A Malaysian Group II and Group III producer was expected to build inventories ahead of an extended turnaround in January of next year, limiting its spot availability.

Demand in some of the key markets such as China remained sluggish, following a short period of increased activity ahead of the National Day or Golden Week holidays in early October, when millions of people travel in the country to reunite with family. The government’s efforts to revitalize the economy led to increased manufacturing activity, which in turn resulted in heightened demand for industrial, marine and rail lubricants, but other segments remained lackluster.

Chinese demand for base oil imports has subsided and domestic supplies were deemed sufficient to meet most product requirements. Numbers for imports of Group II light grades were not workable as locally-produced base oils were more competitive. Group I grades such as bright stock may be an exception as China has a deficit of the heavier grades and needs to import cargoes from Southeast Asia and other sources, with prices having risen steadily over the last two months.

With a new Group III plant having started operations in China and other suppliers improving specifications of their own base oils, China’s dependence on Group III imports has declined. Nevertheless, there was mention of a 3,000-ton cargo expected to be shipped from Ulsan, South Korea, to Tianjin the first week of Nov. About 10,000 tons were heard to have moved from Singapore to Taicang in late October. Conversely, a 2,000-ton lot was shipped from Shanghai to Singapore at the end of October.

Demand in other countries of the region was also slightly tentative due to economic uncertainties and the need to lower inventories ahead of year-end to avoid tax assessments on existing stocks. Tensions in the Middle East and the possibility that the Israel-Hamas conflict could spread to other countries in the region also dampened consumption levels as buyers preferred to wait for further developments before securing additional cargoes.

India seemed to be a different story in that base oil demand has strengthened and buying interest for imports has perked up. The country’s healthy economic growth rate and the approach of the largest festival of the year, the Diwali Festival of Lights, celebrated for five days starting on Nov. 12, have prompted blenders to acquire additional base oil cargoes as lubricant demand was expected to be strong. Diwali is also celebrated in Singapore and other Southeast Asian countries.

Since Group I availability remained scarce in the region, buyers have opted for using Group II grades whenever applications allowed, as spot availability of Group II cuts was more plentiful, even though the price difference between the two categories was quite substantial. Several cargoes were anticipated to be concluded for shipment to India from the Middle East and the United States this month. Details also emerged about a 10,000-ton cargo having been shipped from Port Arthur, U.S., to Mumbai in mid-September on the TRF Marquette.

Spot cargoes that typically move from the U.S. to neighboring Mexico were facing newly-imposed import restrictions and this might limit the amount of U.S. product moving to Mexico in the next few weeks, potentially leading to more cargoes being offered into alternative destinations such as India. News of the new Mexican legal roadblocks reached Indian participants, who appeared to have jumped on the opportunity to secure U.S. light grades cargoes at a discount.

In terms of Middle Eastern cargoes, a 2,000-ton parcel was expected to be shipped from Ruwais, United Arab Emirates, to Jawaharlal Nehru Port Trust in early November. About 18,000 tons were being discussed for shipment from Yanbu and Jeddah to Mumbai in late November.

A couple of South Korean cargoes were also anticipated to be reaching Indian shores in coming weeks. About 8,000 tons to 9,000 tons were expected to be shipped from Onsan to Mumbai at the end of November.

With arbitrage opportunities opening up in the Americas, South Korean cargoes have been booked to some faraway destinations such as the West Coast of South America. A 9,000-ton parcel was expected to be shipped from South Korea to Ecuador and Peru this month. A 4,500-ton parcel made up of two base oil grades was on the table for shipment from Onsan to Rio de Janeiro, Brazil, in early December. A 5,000-ton base oil cargo was quoted for shipment from Daesan or Pyongtaek to Houston, U.S. or Port La Nouvelle, France, in January.

On the more regional routes, a 3,000-ton lot was mentioned for lifting in Yeosu to Manila, Philippines, at the end of Nov. Another 3,000-ton to 5,000-ton was likely to be shipped from Yeosu to Hamriyah, U.A.E., in late November as well.

Base oil spot price assessments were steady to slightly firmer in Asia, depending on the factors impacting each of the different base oil 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 higher from the previous week. The Group I solvent neutral 150 grade was higher by $10/t at $840/t-$880/t, and the SN500 moved up by $10/t as well to $990/t-$1,020/t. Bright stock also edged up by $10/t to $1,220/t-$1,260/t, all ex-tank Singapore.

Prices for the Group II 150 neutral were holding 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 unchanged at $790/t-$830/t, and the SN500 was hovering at $890/t-$920/t. Bright stock prices were firm at $1,010/t-$1,050/t, FOB Asia on limited availability.

The Group II 150N edged up by $10/t to $900/t-$930/t FOB Asia, but the 500N was 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 on thin discussions. 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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Historic and current base oil pricing data are available for purchase in Excel format.