This week, crude oil values were trading at five-month highs on escalating tensions in the Middle East after an Iranian commander was killed in Damascus, Syria, by an Israeli missile strike. Expectations of continued output curbs by OPEC+ against increased oil demand from the United States and China also pushed prices up. Some members of OPEC+ are voluntarily cutting 2.2 million barrels per day of output through at least the second quarter, with the organization’s Joint Ministerial Monitoring Committee wrapping up a meeting on Wednesday without recommending changes to the current production policy.

On Thursday, April 4, Brent May 2024 crude futures were trading at $89.39 per barrel on the London-based ICE Futures Europe exchange, from $86.46/bbl on March 28.

Dubai front month crude oil (Platts) financial futures for May 2024 settled at $88.70 per barrel on the CME on April 3, from $85.71/bbl for April futures on March 27.

One of the big question marks in the region remained China, as the country used to import large quantities of base oils in the spring, often tipping the supply and demand scale in the region. However, China has added significant base oil capacity in recent years and is increasingly more self-reliant in terms of base oil needs. A number of plants remained off-line for maintenance, but also to keep oversupply in check, as China demand has been less robust than anticipated for this time of the year, when increased activity in the agricultural and construction segments as well as automotive sector typically draw more lubricant volumes.

China continued to be afflicted by economic uncertainties and this has dampened activity in downstream lubricant and finished products segments. While lubricant manufacturers were heard to be targeting higher finished product prices in March to counteract the firming raw material and production costs, fierce competition among manufacturers and a need to protect market share may dissuade suppliers from seeking price hikes, particularly as April is typically a weaker month in terms of demand.

The Taiwanese producer Formosa Petrochemical regularly ships term and spot API Group II base oil cargoes to China every month, but volumes have fallen over the last two months due to a partial shutdown at the plant caused by maintenance at the affiliated refinery. Spot availability from the producer was anticipated to grow once the refinery maintenance is completed in late April and the base oil plant ramps up rates. A 1,600-metric ton cargo was being discussed for shipment from Mailiao, Taiwan, to Port Klang, Malaysia, in mid-April. A 4,000-ton to 5,000-ton lot was also mentioned for possible shipment from Taiwan to West Coast India or the United Arab Emirates in late April.

Additionally, another key Group II supplier that often ships product to China is Hyundai Oilbank-Shell in Daesan, South Korea. The plant was heard to have had a partial shutdown for most of the months of February and March because of maintenance at the refinery that supplies feedstocks, but was expected to ramp up rates this month, although this could not be confirmed with the producer directly.

China is also generally short on the heavy-viscosity grades such as Group I bright stock and therefore imports cargoes from Southeast Asia and sometimes Eastern Europe. Group I supplies have been tight in Southeast Asia because of turnarounds in the first few weeks of the year, along with healthy domestic demand in those countries where production is located, including Indonesia, Thailand and Singapore. Bright stock import prices have therefore edged up, while a local producer has also marked up bright stock as output was limited.

A fairly new Group III production unit which came on line late last year in China appeared to be able to supply large quantities of these grades starting this month, but the country continues to import cargoes, with a Middle East supplier becoming more active there in recent weeks because demand at other destinations has weakened. There have also been discussions involving South Korean product. A 1,200-ton cargo was quoted for prompt shipment from Onsan to Jingjiang, while a 2,000-ton lot was on the table for shipment from Pyongtaek to Zhuhai and Singapore in the second half of April or early May.

Group III supplies have tighthened in Asia given a turnaround at a key South Korean facility. 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 in mid-April. The company has been able to meet term requirements and has shipped a limited number of spot cargoes as it has built stocks ahead of the turnaround and has continuous production at other sites, but the shutdown was expected to tighten short-term inventory.

The 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.

In India, the tempo of base oil discussions has subsided given the end of the fiscal year on March 31. Participants prefer to conclude transactions ahead of this deadline and activity has therefore declined, although buyers were still interested in building inventories before the start of the monsoon season in June. Prices in India have remained largely flat, however, as buyers were not keen on paying higher prices because there seemed to be enough availability of most grades, and suppliers appeared willing to wait and offer May cargoes, which were anticipated to fetch steeper figures.

Domestic base oils were also available at competitive levels, a situation that has been made possible as Indian refiners are able to import competitively-priced crude oil –  mainly from Russia – although a stricter enforcement of international restrictions on Russian crude exports and shipments may result in reduced crude volumes moving to India from that origin.

While Indian buying interest for Group II grades was expected to remain healthy, tighter regional supplies of Group II grades, particularly of the heavy-vis grades, were expected to push offers to higher ground. However, a number of light-viscosity grade cargoes from refiners outside Asia have been finalized, with U.S. and Spanish product expected to have shipped in March/early April. There were also expectations of additional domestic Group II capacity becoming available as a new unit was anticipated to come on stream this month, although this could not be confirmed.

Group III demand was also expected to stay healthy in India and was encouraged by attractive pricing of South Korean and Middle Eastern material.

In shipping circles, a 10,000-ton to 13,000-ton cargo was mentioned for lifting in Onsan, South Korea, to Mumbai in early April. A second cargo of approximately the same volumes was also discussed to cover the same route on similar dates. A 5,000-ton lot was expected to be shipped from Yangpu, China, to Mumbai in late April. A 4,000-ton parcel was on the table for shipment from Rayong, Thailand, to Mumbai in early May. A 6,000-ton parcel was quoted for shipment from the U.S. Gulf to the west coast of India in late April.

As mentioned above, base oil spot prices in Asia were steady-to-firm this week, with some prices edging up on snug supplies 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 mostly steady, but a couple of grades moved up given tighter conditions. The Group I solvent neutral 150 grade was unchanged at $890/t-$930/t, but the SN500 edged up by $10/t to $1,030/t-$1,070/t. Bright stock was steady at $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 $10/t to $1,050/t-$1,090/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was stable at $760/t-$800/t, and so was the SN500 at $900/t-$930/t. Bright stock prices were assessed up by $10/t at $1,100/t-1,140/t, FOB Asia on tight supply.

The Group II 150N was holding at $830/t-$870/t FOB Asia, and the 500N was also unchanged at $920/t-$960/t FOB Asia.

In the Group III segment, 4 centiStoke, 6 cSt and 8 cSt prices have firmed by $10/t week on week. The 4 cSt grade was hovering at $1,070-$1,100/t, and the 6 cSt was assessed at $1,060/t-$1,100/t. The 8 cSt cut was also up by $10/t at $960-1,000/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.