The Red Sea incidents have affected crude oil and feedstock prices given the difficulties for some oil tankers to move product out of the Middle East, and this added to the price volatility caused by macroeconomic factors. Early in the week, crude oil futures plummeted following significant price cuts by top exporter Saudi Arabia to its official selling prices, but values recovered later in the week.

On Thursday, crude futures moved up on increased concerns about an escalating conflict in the Middle East after additional attacks on Gaza and on vessels in the Red Sea. However, an unexpected build in United States crude inventories capped gains.

On Jan. 11, Brent March 2024 crude futures were trading at $78.23 per barrel on the London-based ICE Futures Europe exchange, from $79.08/bbl on Jan. 4.

Dubai front month crude oil (Platts) financial futures for February 2024 settled at $76.24 per barrel on the CME on Jan. 10, from $77.92/bbl on Jan. 3.

Base oil shipments moving from Asia to the Americas were facing a different kind of challenge if they were meant to reach the U.S. Gulf Coast or the East Coast of South America, as there was a backlog of vessels waiting to cross the Panama Canal. According to media reports, the Panama Canal Authority has reduced the number of vessels transiting the Canal from 34-36 per day to 22 vessels due to record-breaking low rain levels and a lack of water in Gatun Lake, an artificial lake that supplies water to the canal. Some charterers were opting for the lengthier voyage round South America across the Strait of Magellan to avoid the delays. At least one shipping company, Maersk, was heard to be avoiding passage through the Panama Canal and using a “land bridge” that utilizes rail transportation across the 80 kilometers of Panama to the other coast.

A South Korean supplier noted that it would be able to fulfill immediate orders for U.S. customers as it has sufficient inventories in storage to cover immediate requirements, but it was not clear how long this situation could be sustained.

A Middle East producer that expected difficulties in getting cargoes to their destinations has temporarily shut down production at its API Group II and Group III base oils plant. While the unit was heard to be generally running well, the company was taking the opportunity to make some equipment adjustments. The producer has not yet specified a restart date, but it appeared likely that it will resume production at the beginning of February. In the meantime, it was able to meet current requirements by shipping out existing stocks.

The difficulties in getting cargoes to their destinations and the ensuing delays were partly offset by sluggish demand in most regions. Participants were returning to their workplaces after the year-end holidays and assessing product needs, with many remaining cautious as they expected base oil prices to be under pressure given ample regional availability.

A number of producers have experienced some production hiccups, with a South Korean plant expected to be run at reduced rates or shut down briefly in February due to maintenance. Another South Korean producer had shut down for a few days in December because of feedstock supply issues.

Nevertheless, there appeared to be ample South Korean base oil availability and suppliers have been actively seeking opportunities to export Group II and Group III cargoes, with discussions involving a 3,200-metric ton lot to be shipped from Onsan to Merak, Indonesia, and a second 1,300-ton lot going to the same destination this month. About 4,000 tons were discussed for shipment from South Korea to Gebze, Turkey, in second half of January. A 1,300-ton cargo was expected to be shipped from Yeosu to Yokohama, Japan, in early March. Some cargoes were also expected to move to India as detailed below.

Group II and Group III base stocks were generally plentiful in the region, but Group I cuts were on the snug side. This has insulated prices from price cuts, but competition with Group II grades, which were in high supply, has pressured Group I prices down as some blenders opted for replacing Group I grades with Group II base stocks whenever formulations allowed. This was not the case with bright stock, as this cut is not easily replaced.

The ample availability of Group II cuts has also tempered the impact of a turnaround at a Thai Group I plant this month. Southeast Asia remains a crucial source of Group I base oils because there is a concentration of facilities in Singapore, Thailand and Indonesia. Group I plants in Japan have also played an important role in the region, but two Eneos Group I facilities in that country have been closed permanently over the last two years, reducing Group I availability for domestic sales as well as for export.

Group II supplies were also deemed more readily available in Asia since the restart of Formosa Petrochemical’s Group II plant in Mailiao, Taiwan, following a two-month planned turnaround that was completed in December. The supplier typically ships large amounts under contract to China, but it was able to offer some spot cargoes in January and was expected to have some availability in February as Chinese requirements have been lackluster.

Meanwhile, blenders did not seem to have trouble obtaining Group III barrels as there appeared to be a global glut of these grades, placing downward pressure on prices. The supply overhang in Asia may see a reduction because Petronas planned to start a two-month turnaround at its Group III plant in Malacca, Malaysia, this month, and SK Enmove has also scheduled a one-month turnaround at its Group III plant in Ulsan, South Korea, in the first quarter. However, both producers were expected to build inventories ahead of the shutdowns to cover some contract commitments during the outages.

In India, Group III base oils were more than adequate to cover demand, and prices have come under pressure, with the exception perhaps of the 8 centiStoke grade, which was said to be less readily available.

Group I grades were still on the tight side in India, particularly as industrial activity has been strong. Group I base oils are still used in many industrial oils, as well as in heavy duty motor oil, railway and marine applications.

Group II availability in India was also considered sufficient to meet demand given that several cargoes – some from Asia, some from the Middle East and the U.S. – were scheduled to reach Indian shores in the coming days. These shipments were expected to compete with domestic production of Group II grades.

Several Group II and Group III cargoes were being discussed for shipment to India during the week, including an 8,000-ton to 10,000-ton lot that was quoted for shipment from Onsan, South Korea, to Mumbai in mid-Jan. A 10,000-ton cargo was also anticipated to be shipped from South Korea to West Coast India between Jan. 24 and Jan. 31. A 2,000-ton parcel was discussed for shipment from Ras Laffan, Qatar, to West Coast India this week. About 10,000 tons were mentioned for shipment from Sitra, Bahrain, or Ras Laffan to West Coast India at the end of January. An unusual inquiry surfaced for a 1,000-ton cargo, likely of Group I grades, for prompt shipment from Iran to Mumbai.

In another key market, China, conditions are yet to show their true colors, as buying interest has been lackluster and many blenders preferred to make do with locally-produced material rather than risk securing imports whose price may fall in the coming weeks. Buying interest may intensify over the next few days as consumers may opt for replenishing inventories ahead of the Lunar New Year holidays in early February.

There were several Group I import cargoes that were expected to find a home during the week, although some importers were being careful about offers because they expected Group I supplies to tighten given the Thai plant turnaround and the possibility of increased demand.

Group II supplies were plentiful in China and domestic prices have fallen, bringing down spot prices for imports as well. Group III prices have also come under pressure given numerous offers of imported products, as well as availability from a domestic producer who has lowered prices in order to conquer market share.

Despite the tenuous buying interest for imports, there were negotiations going on centering on a 3,000-ton cargo expected to be shipped from Onsan to Jingjiang this month. A 4,000-ton parcel was on the table for shipment from Singapore to Zhuhai and Zhapu in mid-February. A 3,000-ton lot was also mentioned for shipment from Singapore to Tianjin in early February.

Base oil prices in Asia were assessed steady to soft from the previous week despite fairly subdued trading, as lengthening supplies of certain grades were placing pressure on spot indications. 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 lower from the previous week. The Group I solvent neutral 150 grade was heard at $870/t-$910/t, and the SN500 was assessed at $990/t-$1,020/t. Bright stock was steady at $1,180/t-$1,220/t, all ex-tank Singapore.

Prices for the Group II 150 neutral were slightly lower by $10/t at $950/t-$980/t, and the 500N fell by $20/t to $980/t-$1,020/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 edged up by $20/t to $1,010/t-1,050/t, FOB Asia on tighter supply.

The Group II 150N slipped by $20/t to $780/t-$820/t FOB Asia, and the 500N was also assessed lower by $20/t at $790/t-$820/t FOB Asia.

In the Group III segment, 4 centiStoke and 6 cSt prices were softer from the previous week. The 4 cSt was lower by $20/t at $1,170-$1,200/t, and the 6 cSt was also down by $20/t at $1,150/t-$1,190/t. The 8 cSt grade was steady 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.