The ongoing Russian-Ukraine conflict, the upheaval in the Red Sea and the Israel war on Hamas, which threatened to spread to other countries in the region, were placing pressure on crude oil and feedstock prices. Oil futures climbed early in the week, but fell on Wednesday as tensions in the Red Sea seemed to have started to ease and some major shippers resumed travel through the Suez Canal. Reports showed a rise in United States crude inventories, which weighed on prices too.

On Thursday, Dec. 28, Brent February 2024 crude futures were trading at $78.61 per barrel on the London-based ICE Futures Europe exchange, from $79.33/bbl on Dec. 21.

Dubai front month crude oil (Platts) financial futures for January 2024 settled at $79.31 per barrel on the CME on Dec. 27, from $78.99/bbl on Dec. 20.

A majority of base oil buyers were keeping a low profile and continued to purchase product as needed, as they preferred to end the year with lean inventories to avoid tax repercussions on unused stocks. This tendency had manifested itself earlier in the quarter, but became more pronounced over the last couple of weeks, particularly as geopolitical tensions in many parts of the world were creating volatility in crude oil and feedstock values.

At the same time that demand was dwindling, base oil plants were generally being run at top rates given attractive margins compared with competing fuels. However, operating rates may have to be adjusted in order to avoid a flood of product hitting the market all at the same time. Some blenders also shut down operations for a few days during the New Year festivities and this was expected to reduce base oil consumption further.

The uncertainties regarding shipments from the Middle East that might be affected by shippers’ reluctance to send vessels through the Suez Canal has apparently impacted plant operating rates in that region. It was heard that a major Middle East producer had shut down its API Group II and Group III plant temporarily due to a lack of demand, while a second supplier had ostensibly not loaded any cargoes to the U.S. or Europe in December.

Group III base oil supplies have lengthened in Asia in line with a global overhang of these grades, but they may see some tightening in Asia in the first quarter of next year as Petronas planned to start a two-month turnaround at its plant in Malacca, Malaysia, in January, and SK Enmove has also scheduled a one-month turnaround at its Group III plant in Ulsan, South Korea, in the first quarter of 2024. Both producers were expected to build inventories ahead of the shutdowns, limiting their ability to offer spot cargoes.

Group II grades were also deemed plentiful in the region, and several cargoes have made their way to destinations such as India from the U.S. and other distant origins. A reduction in U.S. exports to Mexico due to new government restrictions on base oil imports has left suppliers with extra barrels that they have placed elsewhere. This has resulted in some markets becoming saturated with product, fewer opportunities for suppliers to offload additional volumes, and downward pressure on pricing.

Even the lower figures failed to attract business as buyers showed restraint in terms of acquiring material as prospects in downstream markets were still cloudy. There was uncertainty whether lubricant demand would be picking up in earnest in the new year, or whether it would remain sluggish like it did for a large part of 2023.

Group I availability was more balanced against demand, and some markets were actually tight as domestic consumption remained robust. A turnaround at a Group I plant in Thailand in January was expected to tighten regional supplies further.

In China, there was some buying interest for imports of the heavy grades, particularly Group I bright stock, but consumers were generally relying on domestic product to meet their product needs as prices have declined. Demand was not expected to make great strides until before the Lunar New Year holidays, which will be celebrated in early February next year. January transactions may be a bellwether of business opportunities during the first quarter. A 1,700-ton cargo was mentioned for lifting in Ulsan, South Korea, to Tianjin in late December. A 1,600-ton lot was expected to be shipped from Onsan, South Korea, to Huizhou in late December.

In South Korea, suppliers were trying to finalize some shipments before Dec. 31, with an 1,800-metric ton parcel expected to be shipped from Onsan to Bangkok, Thailand, at the end of December. A 3,000-ton cargo made up of two base oil grades and solvent naphtha C9 was discussed for shipment from Yeosu to Dong Nai, Vietnam, in mid- to late January. A 5,000-ton parcel was also mentioned for shipment from South Korea or possibly Taiwan to the United Arab Emirates in mid-January. A 6,000-ton lot was expected to be shipped from Pyongtaek to Mumbai, India, in late January. A 5,000-ton lot was discussed for shipment from Onsan to New Orleans, U.S., in mid-January.

In India, buying interest for Group I grades had so far been fairly steady, but has started to fizzle as buyers have already purchased some cargoes and these were deemed sufficient to meet current product requirements. Group II supplies from the U.S. were anticipated to arrive next month, easing buyers’ urge to secure regional cargoes in case of shortages. Group II offers from South Korean sellers were largely absent as suppliers have finalized several shipments and were dragging their feet about adjusting prices down.

There was some downward price pressure on Group III base oils in India given plentiful supply on a global scale.

An 11,700-ton lot was expected to have been shipped from Yanbu and Jeddah, Saudi Arabia, to Mumbai in early December. About 5,500 tons to 6,000 tons were mentioned for shipment from Taiwan to West Coast India and/or the United Arab Emirates in mid- January. A 6,000-ton parcel was on the table for shipment from Antwerp, Belgium, to Mumbai or Hazira in late January. About 10,000 tons were expected to be shipped from South Korea to West Coast India in late January.

Base oil spot prices were assessed largely unchanged from the previous week as trading was generally subdued. 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 from the previous week. The Group I solvent neutral 150 grade was heard at $870/t-$910/t, and the SN500 was holding at $990/t-$1,020/t. Bright stock was assessed at $1,180/t-$1,220/t, all ex-tank Singapore.

Prices for the Group II 150 neutral were hovering at $960/t-$900/t, and the 500N was gauged at $1,000/t-$1,040/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was heard at $770/t-$810/t, and the SN500 at $880/t-$910/t. Bright stock prices were holding at $990/t-$1,030/t, FOB Asia.

The Group II 150N was steady at $800/t-$840/t FOB Asia, and the 500N was unchanged at $810/t-$840/t FOB Asia.

In the Group III segment, 4 centiStoke, 6 cSt and 8 cSt prices were assessed stable from the previous week. The 4 cSt was hovering at $1,190-$1,220/t, and the 6 cSt at $1,170/t-$1,210/t. The 8 cSt grade was unchanged at $930-$970/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.