Crude oil futures rose to highs not seen since last October early in the week on expectations of firm demand in the United States and China, along with Ukrainian attacks on Russian energy infrastructure. Futures declined on Wednesday after the U.S. Federal Reserve announced it would keep interest rates steady, which dampened the outlook for future fuel demand. However, on Thursday, oil prices rebounded on unexpected U.S. crude and gasoline inventory declines.

On Thursday, March 21, Brent May 2024 crude futures were trading at $86.44 per barrel on the London-based ICE Futures Europe exchange, from $84.61/bbl on March 14.

Dubai front month crude oil (Platts) financial futures for April 2024 settled at $85.50 per barrel on the CME on March 13, from $83.70/bbl for March futures on March 6.

Some parts of Asia saw muted activity given the observance of Ramadan, but other areas seemed to have sprung to life as warmer weather approached and inventories had fallen below comfortable levels.

In India, base oil suppliers were kept busy as blenders aimed to have most lubricant production finished ahead of the end of the fiscal year on March 31. At the same time, buyers have started to build inventories in the months leading to the monsoon season, which starts in June and brings logistical and transportation challenges. Overall regional tightness of certain grades such as the Group I cuts, together with recent production hiccups at local plants, have driven offer prices up, particularly for bright stock. The Group II 150 and 500 neutral also commanded much attention and prices have edged up, with increases between $10 per metric ton to $30/t observed for these grades on a CFR India basis, with the higher numbers reflecting prices for the heavy grades. There were expectations that import cargoes of light grades from the U.S. and other origins would be arriving in the coming weeks and this was encouraging consumers to resist the steeper offers for these grades.

One interesting development appeared to be the heightened buying appetite for Group III grades, which also saw prices move up by $5/t to $10/t CFR India on higher offers. Observers said that the greater interest in these cuts stemmed from increased demand from the automotive sector, as India has tightened its fuel economy and emissions rules and more automakers are using premium base oils for automotive lubricants. Automotive sales were also strong in India, particularly for passenger cars. Group III prices were generally maintained because scheduled maintenance at Group III plants in Asia was crunching spot supplies, and suppliers were unwilling to sell Group III grades at the buyers’ expected levels.

SK Enmove was understood to have started a routine turnaround at its Group III units in Ulsan, South Korea, on March 13 that will be completed by late April. The company will be able to meet requirements as they have built stocks and have continuous production at other sites, but the shutdown was expected to tighten short-term inventory.

SK-Pertamina Group III plant in Dumai, Indonesia, was heard to have been scheduled for a partial shutdown in May, but this was not expected to have a big impact on supplies as the producer will build inventories to cover commitments during the outage, according to sources.

Group I availability from Southeast Asia was expected to grow as plants have returned to full production, following maintenance programs earlier in the year. However, producers prioritized domestic demand over exports, which led to fewer cargoes being on offer for spot transactions. Keen demand from certain countries such as Thailand, the Philippines and Vietnam were also drawing product away from a wider regional audience, but political unrest in Vietnam, where the President, Vo Van Thuong, resigned this week after just one year on the job for violations of unspecified regulations, may affect industrial and automotive activity in that country.

Group II supplies have also dwindled on revived buying interest from most countries, with buyers showing particular interest in the heavy grades, which have seen increasingly snug conditions over the last couple of weeks in Asia.

In China, there has also been keen interest in Group II imports, particularly as regional availability has tightened with turnarounds and reduced output at a couple of facilities. China routinely receives large amounts of Group II base oils from Taiwan, but Formosa Petrochemical, the sole Taiwanese producer, was heard to be undergoing a partial shutdown since early March that was expected to last for almost two months. The shutdown was linked to maintenance at the affiliated refinery, which supplies feedstocks to the Group II base oils plant. Spot supplies from the producer were anticipated to increase only after the refinery maintenance is completed in late April.

The Hyundai-Shell Group II plant in Daesan, South Korea, which also regularly ships Group II grades to China, was heard to have had a partial shutdown for most of the month of February because of maintenance at the refinery that supplies feedstocks, and continued to run at reduced rates, although this could not be confirmed with the producer directly.

At the same time, there were expectations of increased availability of Group I cuts, as supplies from a Southeast Asian producer have increased and most local plants were running well. Some Chinese units were undergoing maintenance, but that seemed to affect Group II supplies in most cases.

One factor that was keeping a cap on base oil prices in China was the fact that economic uncertainties continued to dampen prospects for a strong recovery in downstream lubricant and finished product segments. Lubricant manufacturers were heard to be hoping to raise finished product prices, but ongoing competition and a need to protect market share may limit any upward adjustments. As a result, blenders would find it difficult to offset rising base oil prices and they were therefore hesitant to accept higher offers.

Importers were looking for competitively-priced cargoes to fill the supply gaps in China and discussions for imports of different origins were ongoing. A 2,000-ton cargo was quoted for shipment from Onsan, South Korea, to Tianjin in late March/early April.

Several other South Korean cargoes were being discussed for shipment this month and the next. A 1,000-ton lot was mentioned for shipment from Onsan to Bangkok, Thailand, in mid-April. About 2,500 tons were expected to be lifted in Onsan for Merak, Indonesia, at the end of April. A 1,000-ton parcel was on the table for shipment from Yeosu to Singapore in mid-April.

Base oil spot prices in Asia were steady to firm this week, with some prices edging up on tight conditions and increased bid and offer levels. 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 stable at $880/t-$920/t, but the SN500 inched up by $10/t to $1,010/t-$1,050/t. Bright stock moved up by $20/t to $1,300/t-$1,330/t, all ex-tank Singapore.

Prices for the Group II 150 neutral were holding at $960/t-$990/t, but the 500N climbed by $20/t to $1,030/t-$1,070/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was holding at $750/t-$790/t, while the SN500 was assessed slightly up by $10/t at $900/t-$930/t. Bright stock prices were firm at $1,080/t-$1,120/t, FOB Asia on tight supply.

The Group II 150N was steady at $820/t-$860/t FOB Asia, but the 500N was assessed higher by $20/t at $920/t-$960/t FOB Asia.

In the Group III segment, 4 centiStoke, 6 cSt and 8 cSt prices were mixed. The 4 cSt grade was hovering at $1,060-$1,090/t, but the 6 cSt slipped by $20/t to $1,050/t-$1,090/t on lackluster demand. The 8 cSt cut was up by $10/t 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.