Despite OPEC+’s intention to reduce output next year, oil futures fell by more than 2% on Thursday because the cuts fell short of market expectations.

On Nov. 30, Brent February 2024 crude futures were trading at $82.83 per barrel on the London-based ICE Futures Europe exchange, from $81.96/bbl for January futures on Nov. 22.

Dubai front month crude oil (Platts) financial futures for January 2024 settled at $82.71 per barrel on the CME on Nov. 29, from $82.47/bbl for Dec. futures on Nov. 22.

During the ICIS Pan American Base Oils and Lubricants Conference taking place in Jersey City, United States, on Nov. 30-Dec. 1, there was talk about how some developments in the U.S. and Latin America had impacted base oils business in Asia during the last quarter of the year. One of the more recent incidents involved new regulations imposed by the Mexican government on U.S. chemical and refined products exports, including base oils, with the aim of stopping the illegal trade of fuels and other products. Gasoline and diesel were exempt. The new rules require importers to secure a license, which may take some time to process. Some U.S. shipments were detained at the Mexican border until temporary permits were obtained.

Mexico is the largest export market for U.S. base oils, and the shipment disruptions caused some suppliers to start looking for alternative takers of U.S. base oils, particularly light-viscosity grades that are used as diesel extenders. Some cargoes were sold to India, and as a result, spot prices in that country dropped. There are expectations that the new regulations in Mexico might impact light and ultra-light-viscosity base oil exports from the U.S. in the near future, and that more of these cuts might become available for export into other destinations.

Additionally, competition among API Group I base oil producers in India have also brought prices down. Group I grades saw downward adjustments of about $10 per metric ton to $20/t week-on-week on a CFR basis. Slowing buying interest in India placed pressure on other base oil grades such as the Group II cuts as additional offers for deep-sea cargoes emerged, despite encouraging economic indicators that reflected healthy GDP growth and brisk automotive and industrial activity.

According to S&P Global, Asia-Pacific’s economic growth will no longer be driven by China next year – instead, South Asia, including India, and Southeast Asia will be the growth engine. India’s gross domestic product growth is expected to reach 6.4% in 2024 – previous forecasts had placed it at 6% – and was expected to hit 7% in 2026.

Similarly, other emerging markets such as Indonesia, Malaysia and the Philippines are set to see positive GDP growth this year and the next due to strong domestic demand, a CNBC.com article noted in reference to the S&P Global report.

On the other hand, analysts are no longer bullish about China’s economic growth, which is expected to come in at 5.4% this year, and at 4.6% in 2024. The slower economic activity was also reflected in lackluster performance of base oils and lubricants segments this year, with import volumes also suffering as a consequence.

China has increased its domestic production of base oils thanks to new capacity coming on stream over the last three or four years. However, due to the fact that demand has not been as strong as expected, some of these plants were not running at full rates or have stopped production temporarily. Nevertheless, China has benefitted by reducing its dependence on base oil imports, although it still has a deficit of the heavy-viscosity grades such as bright stock.

Meanwhile, healthy demand in Southeast Asia and Japan absorbed most domestic Group I production in those countries, leaving limited volumes for exports. As a result, prices were able to be maintained at steady levels or inched up slightly.

A number of recent and ongoing shutdowns also impacted Group I availability in the region. Japanese refiner Eneos decommissioned its Group I plant in Wakayama permanently in mid-October, while the producer also completed maintenance at its Mizushima A Group I plant from September until late November. Group I exports from Japan have therefore been reduced, and the country has also had to import cargoes to cover domestic demand. It was heard that a large U.S. refiner based in Singapore had shipped increased volumes to Japan over the last couple of months.

In the Group II segment, prices were fairly steady during the week, but were expected to come under pressure as the Taiwanese Group II producer, Formosa Petrochemical, was expected to restart its plant in Mailiao in early December, following a two-month turnaround. The producer has limited its sales to contract commitments during the turnaround but was anticipated to start offering spot cargoes once it was able to rebuild inventories. A 3,500-metric ton cargo made up of two base oil grades was quoted for shipment from Mailiao to Hamriyah, United Arab Emirates in December.

At the same time, South Korean Group II producer Hyundai Oilbank-Shell was heard to have cut production rates at its plant in Daesan (Seosan-si) during November, impacting Group II availability.

Malaysian Group II and Group III producer Petronas was also expected to start padding its inventories ahead of an extended turnaround in January, limiting its spot supplies.

Discussions involving spot Group III cargoes were thin and as such, prices remained generally unchanged from the previous week.

SK Enmove plans to shut down its Group III base oil units in Ulsan in March for a month-long turnaround, and spot availability will be reduced as a result.

In shipping circles, it was heard that about 17,000 metric tons were expected to be shipped from Cartagena, Spain, to Mumbai and the UAE in early December. A 5,000-ton to 7,000-ton cargo was mentioned for shipment from Daesan and Pyongtaek, South Korea, to Chennai in December.

Several additional South Korean shipments were under discussion as well, including a 5,800-ton lot made up of base oils and C9 to be shipped from Yeosu to Dong Nai, Vietnam, and Tanjung Priok, Indonesia, in late December, and 1,500 tons to be lifted in Ulsan to Merak, Indonesia, in January. About 3,000 tons to 4,000 tons were expected to be shipped from Ulsan to Port Klang, Malaysia, in December. A 2,900-ton lot was on the table for shipment from Onsan to Jingjiang and Zhangjiagang, China, in December.

Base oil spot price assessments were mixed in Asia this week, depending on supply and demand factors and margin pressure from volatile feedstock values. 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 slightly higher from the previous week. The Group I solvent neutral 150 grade was up by $10/t at $860/t-$900/t, and the SN500 was assessed steady at $990/t-$1,020/t. Bright stock fell by $20/t to $1,180/t-$1,220/t, all ex-tank Singapore as demand was seasonally lower.

Prices for the Group II 150 neutral were holding at $1,010/t-$1,040/t, and the 500N was also steady at $1,040/t-$1,080/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was unchanged at $800/t-$840/t, and the SN500 was hovering at $900/t-$930/t. Bright stock prices were down by $10/t at $1,000/t-$1,040/t, FOB Asia as demand slows down during the winter.

The Group II 150N was lower by $20/t at $860/t-$890/t FOB Asia, and the 500N also fell by $20/t to $880/t-$910/t, FOB Asia.

In the Group III segment, 4 centiStoke, 6 cSt and 8 cSt prices were assessed largely unchanged this week. The 4 cSt was assessed at $1,250-$1,280/t, and the 6 cSt was hovering at $1,220/t-$1,260/t. The 8 cSt grade was gauged at $940-$980/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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