Weekly Asia Base Oil Price Report


While there were no unexpected incidents in Asia this week, there was a sense of unease and trepidation as geopolitical conflicts and economic uncertainties cast a shadow on an otherwise fairly steady base oils market.

The death of Iranian President Ebrahim Raisi, Foreign Minister Hossein Amirabdollahian, and other officials in a helicopter crash over the weekend fed concerns of a potential escalation of the Israel-Hamas conflict as conspiracy theories emerged of an Israeli involvement in the accident. Although there was no proof that Israel was involved, market players worried that a larger conflict in the Middle East could impact crude oil futures and inevitably, affect base oil prices in the coming weeks.

Additionally, attacks on commercial vessels in the Red Sea by Houthi rebels based in Yemen continued, with a strike reported on a tanker over the weekend, placing pressure on freight rates and limiting vessel availability as shipments moving west continued to be rerouted around the Cape of Good Hope in South Africa, making Asian offers to Europe less competitive.

Iran’s first vice president was expected to serve as the country’s acting president until elections are held on June 28. The Associated Press reported that United States officials did not think that the change in Iran’s leadership would alter Iran’s support of Hamas, Hezbollah or the Yemen-based Houthis who have targeted commercial shipping vessels since the start of the war in Gaza, and added that Iran would probably continue to supply Russia with drones and other weaponry for its war in Ukraine.

Contrary to expectations, however, the reaction to the news out of Iran appeared to be minimal in crude oil circles, with analysts focusing instead on the possible outcome of the OPEC+ meeting next weekend. Futures edged down slightly early in the week due to lingering inflation in key world economies and expectations that interest rates would remain unchanged for longer, which could dampen crude oil demand. Futures then extended their losing streak on Wednesday on reports of a surprise crude inventory build in the U.S. West Texas Intermediate and Brent were down more than 2% for the week on Wednesday.

On Thursday, May 23, Brent July 2024 crude futures were trading at $81.44 per barrel on the London-based ICE Futures Europe exchange, from $82.72/bbl on May 16.

Dubai front month crude oil (Platts) financial futures for June 2024 settled at $83.22 per barrel on the CME on Tuesday, May 21, from $82.48/bbl on May 15. The May 22 settlement was not available by the publishing deadline.

Aside from keeping an anxious eye on crude oil and feedstock prices, base oil market participants were monitoring the supply and demand ratio of several grades given a gradual tightening over the last few weeks, which sent spot offers to higher levels. However, buyers appeared incresingly resistant to the steeper indications given lower crude oil and feedstock prices and expectations of a seasonal demand slowdown in the weeks ahead.

The API Group I segment has been tight since the beginning of the year due to healthy demand and the plant rationalization that has taken place over the past several years, with only a few Group I units still running within Asia. Most of the production is now concentrated in Southeast Asia, although a handful of plants are also located in Japan. India also used to be able to import cargoes from Iran, but international sanctions have largely thwarted this interaction. While producers in Thailand, Indonesia and Singapore are routinely exporting Group I parcels, growing domestic demand and term commitments have limited the volumes available for spot transactions.

It was heard that Thai and Indonesian Group I exports had been sold to Middle East receivers, with the Thai cargo offered via a tender. Bright stock continued to be sought-after as it is a base stock that is difficult to replace, and prices have therefore remained at steep levels from most origins.

China has increased base oil capacity in recent years, but the bulk of new production is of Group II light grades, while the heavy grades remained in deficit. Some importers were on the lookout for the heavy viscosities, but buying interest for imports has dwindled as prices have climbed. While China had heavily relied on base oil imports in the past, the country has become more self-reliant and fewer cargoes have been imported in recent months. Competitive pricing from local producers was also discouraging the acquisition of imported parcels.

Nevertheless, there continued to be routine shipments from Singapore, Thailand, Taiwan and South Korea, among others. There has been particular interest in Group II cargoes partly because of ongoing maintenance at a local Chinese refinery, a prolonged shutdown at a second plant that appeared to remain off-line since March but was expected to restart later this month or in early June, and recent drops in import volumes from Taiwan and other Asian origins. However, it appeared that arbitrage opportunities were scarce as the price of imports has moved up on tight regional supplies.

The sole Taiwanese Group II producer, Formosa Petrochemical, had pared down its Group II base oil shipments to China during March and April because the producer was focusing on meeting domestic demand, while a shutdown at its Group II plant in Mailiao due to upstream maintenance at the affiliated refinery had also constrained spot shipments. Formosa was expected to ramp up base oil production last week as maintenance work was anticipated to be completed.

Group III supplies were ample in China, despite the turnaround at a local Group III unit that started in late April and was expected to last until early June. There were also offers of imported cargoes, but buying interest appeared subdued.

In India, base oil prices were generally steady, although there continued to be downward pressure on Group III values as availability has begun to lengthen. Group I supplies were somewhat tight, reflecting overall conditions in the region, but a local producer was expected to ramp up production this month, easing buyers’ concerns about potential shortages. The approach of the monsoon season drove buyers to build some inventory as logistics and transportation suffer complications during the heavy rains, but participants preferred not to hold pricey stocks in case values fell later. India was also holding general elections from April 19 to June 1 and the results may have a significant economic impact on the country, depending on what party gets elected.

Group II availability was deemed adequate, and several import cargoes were expected to arrive shortly. Prices for the Group II light grade were heard to have softened in line with falling gasoil values. Group II offers from the U.S. have dwindled for the time being as domestic demand has picked up and a U.S. producer completed a partial turnaround, leaving fewer cargoes for export. There was also additional availability of locally-produced material, which buyers favored in many cases to avoid the logistical issues associated with imports. Several South Korean cargoes of various grades were also under consideration. There was also mention of cargoes being re-exported from India to faraway destinations such as Brazil.

Group III availability has started to lengthen in Asia given the restart of the SK Enmove plant in South Korea, following a turnaround that started in mid March and was completed this month. However, the SK-Pertamina plant in Dumai, Indonesia, was expected to undergo maintenance this month, reducing regional short-term Group III inventories. Later in the year, S-Oil has scheduled a turnaround at its Onsan plant in September and October that might affect Group I, Group II and Group III availability, but the producer will build inventories ahead of the outage.

Asian refiners were expected to run base oil plants at elevated rates as base stock margins were still more attractive than competing fuel prices, particularly in the case of the light grades. This situation may result in increased availability of certain grades next month, when demand typically tapers off in key markets such as India due to the monsoons.

Base oil spot prices in Asia were steady-to-firm, with indications for some grades moving up on tighter 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 generally steady-to-firm. The Group I solvent neutral 150 grade was unchanged at $900/t-$940/t, and the SN500 was holding at $1,040/t-$1,080/t. Bright stock was assessed up by $10/t at $1,300/t-$1,330/t, all ex-tank Singapore.

Prices for the Group II 150 neutral edged up by $10/t to $1,000/t-$1,030/t, but the 500N was steady at $1,100/t-$1,140/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was hovering at $780/t-$820/t, and the SN500 was also unchanged at $910/t-$930/t. Bright stock prices were firm at $1,120/t-$1,160/t, FOB Asia on tight supply.

The Group II 150N inched up by $10/t to $870/t-$910/t FOB Asia, and the 500N was up by $10/t at the high end of the range at $960/t-$1,010/t FOB Asia.

In the Group III segment, 4 centiStoke and 6 cSt prices were steady, but were increasingly exposed to downward pressure due to growing supply. The 4 cSt grade was assessed at $1,100-$1,140/t, and the 6 cSt was heard at $1,100/t-$1,140/t. The 8 cSt cut was holding at $990-$1,030/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.

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