There has been an uptick in base oil market activity in Asia as participants returned to the market following holidays and several weeks of subdued trading. Producers were either keeping steady offer levels or have increased them slightly on improved demand and higher crude oil and feedstock values which were placing upward pressure on base oils. However, some of this pressure was offset by plentiful availability of most grades and buyers’ confidence that they would be able to procure material from various sources.
Regional refiners will also be assessing the allotment of feedstocks in their refining operations, as diesel and vacuum gasoil supplies were expected to tighten globally after the implementation of European Union sanctions on Russian refined products on Feb. 5. A drive to increase distillates production in detriment of base oil output might lead to tightening supplies of the latter.
One of the markets that appeared to have started to revive was China, which had been fairly quiet ahead and during the Lunar New Year or Spring Festival celebration the previous weeks. Most buyers had worked down inventories before the holidays and were ready to start replenishing stocks. Many uncertainties lingered due to the government’s abrupt abandonment of its zero-COVID policies and a dramatic rise in infections, which had affected industrial performance and consumer spending since December, but there was more optimism that economic growth would be stronger in 2023.
While it was too early to ascertain whether demand for lubricants would be consistently improving, there had been increased requirements ahead of the holidays due to the massive migration of people visiting their hometowns. The number of travelers by car rose exponentially this year compared to the previous one as COVID restrictions have been lifted.
The approach of the spring oil season also meant that blenders needed to pad inventories to crank up lubricant production to meet potentially flourishing demand. As a result, domestic base oil prices have stabilized and there was heightened interest in imports. Ongoing and upcoming plant turnarounds were also straining domestic availability. Availability of API Group I heavy grades from Southeast Asia was also on the tight side, particularly for heavy grades, which are the cuts that China has a deficit of.
Several Group II cargoes were being discussed for shipment to China, including some from Taiwan, although the sole Taiwanese Group II supplier was expected to have limited spot availability over the next few weeks. The producer was preparing for a turnaround and was heard to be building inventories to cover term commitments during the outage and was therefore limiting spot supplies. A South Korean cargo was being considered for shipment from Onsan to Taichung, Taiwan, in late February.
Regional suppliers, including South Korean producers, were monitoring their spot availabilities carefully as they anticipated demand for term volumes to increase in coming weeks, leaving less product for spot business. Even so, several South Korean cargoes were being considered for possible shipment to China, including a 5,000-metric ton lot from Daesan to Tianjin in mid-February.
Group II supplies were deemed plentiful in the region, but the heavy grades have started to tighten on increased buying appetite, which encouraged suppliers to up their offer levels. Group III cargoes continued to move steadily throughout the region but may be more limited in the second quarter, as a South Korean Group II and Group III plant will undergo a turnaround in June.
In India, a need to wrap up business ahead of the end of the fiscal year on March 31 offered an added incentive for blenders to produce more lubricants and sell them before the deadline, which brought buyers back to the base oils market. Additionally, the fact that prices appeared to have bottomed out and there was a possibility that they would be strengthening in coming weeks also drew buyers back to the trading scene.
South Korean offers inched up, particularly for flexibag volumes, and were expected to remain firm as requirements mount. Competitively priced domestic Indian material produced from deeply discounted Russian crude oil was considered an attractive option. Nevertheless, several import cargoes were discussed for shipment to Indian ports. A 3,000-ton cargo was expected to have been concluded for shipment from Onsan, South Korea, to Mumbai in the first few days of February. Approximately 18,000 tons were mentioned for lifting in Singapore to West Coast India and the United Arab Emirates at the end of the month. A 2,000-ton to 2,500-ton parcel was also being discussed for shipment from Singapore to Mumbai or Hamriyah, U.A.E., in early March. A 15,500-ton lot was mentioned as having been concluded from Yanbu, Saudi Arabia, to Mumbai and West Coast India at the end of January. About 6,000 tons were on the table for shipment from Ruwais, U.A.E., to West Coast India and Chennai in late February. A 2,000-ton parcel was being considered for lifting in Rayong, Thailand, to Mumbai or Hazira in the second half of February as well.
A more positive market outlook and slightly improved requirement levels resulted in steady-to-firm spot assessments in Asia. 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 week on week. Spot prices for the Group I solvent neutral 150 grade were assessed at $920/t-$950/t, and the SN500 at $1,030/t-$1,070/t. Bright stock was firmly positioned within a $1,290/t-$1,330/t range, all ex-tank Singapore.
Prices for the Group II 150 neutral were unchanged at $970/t-$1,010/t, and the 500N was holding at $1,000/t-$1,050/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was steady at $790/t-$830/t, but the SN500 edged up by $20/t to $840/t-$880/t. Bright stock prices were hovering at $1,070/t-1,110/t, FOB Asia.
The Group II 150N jumped by $30/t to $830/t-$870/t FOB Asia, and the 500N and 600N cuts were also up by $30/t at $850/t-$880/t, FOB Asia.
In the Group III segment, prices were unchanged from last week. The 4 centiStoke was assessed at $1,520-$1,560/t, and the 6 cSt was hovering at $1,490/t-$1,530/t. The 8 cSt grade was mentioned at $1,210-1,250/t, FOB Asia, for fully approved product.
Upstream, crude oil futures rose for a third day in a row on Wednesday as the U.S. Federal Reserve chair’s remarks eased concerns about future interest rate hikes, and an Iranian official commented that OPEC+ was likely to keep its production plans intact.
Additionally, adverse weather conditions were obstructing loading operations at Turkey’s Ceyhan port, which exacerbated the impact of Monday’s devastating twin earthquakes in Turkey and Syria. The port is a critical hub for the discharge of crude oil and oil products, along with the loading of Azeri crude and a stream of Iraqi crude oil, CNBC.com reported. BP Azerbaijan on Wednesday declared force majeure on loadings of Azeri crude from the port.
On Feb. 9, Brent April futures were trading at $85.17 per barrel on the London-based ICE Futures Europe exchange, from $82.80/bbl on Feb. 2.
Dubai front month crude oil (Platts) financial futures for March settled at $81.79 per barrel on the CME on Feb. 8, compared to $79.45/bbl on Feb. 1.
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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