Brent crude oil futures have been hovering in the low $80s per barrel over the last few weeks, and fell for the second consecutive session on Thursday, after reports of a surprise jump in gasoline and distillate fuel stockpiles in the United States. 

On Thursday, May 30, Brent July 2024 crude futures were trading at $81.86 per barrel on the London-based ICE Futures Europe exchange, from $81.44/bbl on May 23.

Dubai front month crude oil (Platts) financial futures for June 2024 settled at $83.49 per barrel on the CME on May 29, from $81.73/bbl on May 23. The May 22 settlement was unavailable at the time of publishing.

While there is always a chance that strong crude oil and feedstock price fluctuations can affect base oil prices – although the impact takes some time to trickle down – supply and demand conditions seemed to be more predominant in determining the current price direction.

Most base oil supplies remained fairly tight against demand, but Asian refiners were running base oil plants at high rates given more favorable base stock margins over competing fuel prices. This situation may lead to oversupply conditions of certain grades in the coming months, when demand typically declines in key markets such as China and India due to seasonal factors.

Group I spot availability was generally limited in the region as there is a comparatively small number of plants that still produce these grades, while demand for some of them continues unabated. Spot offers for API Group I grades were said to be few and far between, and some of them logically carried a premium. However, buying interest for bright stock has declined slightly, placing pressure on spot prices.

Thailand, Indonesia and Singapore regularly export Group I cargoes, but growing domestic demand and term commitments have limited the volumes available for spot business and prices have therefore climbed since the beginning of the year. Given market economics, the Group I plants were the most vulnerable to closures compared to Group II and Group III facilities, with a couple of Group I units having shut down permanently in Japan over the last two years. Any potential further closures will only exacerbate the tight conditions in the near future.

Group II grades have also been on the snug side as demand was deemed steady in most places, although consumption could be impacted in key markets such as India given the start of the monsoon season, which often brings heavy rains and flooding in many parts of the country, along with logistical headaches. As a result, base oil demand could see a slowdown there. The lighter grades were generally said to be more readily available than their heavier counterparts.

In China, there was demand for Group I grades from the industrial, agricultural, maritime and railway sectors, and although there is domestic production of Group I grades, the heavy viscosities remained in short supply, particularly bright stock. However, economic woes affecting key segments such as the real estate market were weighing on base oil market activity. Lower domestic pricing also discouraged importers from acquiring large volumes.

Buying interest for Group II grades has also been steady, but most requirements were being met with domestic supplies. There has been a tightening in this segment due to recent drops in import volumes from Taiwan and other Asian origins, together with ongoing maintenance at a local Chinese refinery, and a prolonged shutdown at a second plant that has been off-line since March. However, the plant was heard to have just been restarted, and should start to build inventories soon. Lower domestic prices have enticed buyers to secure local product versus running the risk of importing cargoes that may lose value at a later date.

The sole Taiwanese Group II producer, Formosa Petrochemical, had curbed Group II base oil spot shipments to China during March and April because the producer was focusing on meeting domestic demand. This was due to a partial shutdown at its Group II plant in Mailiao, as upstream maintenance at the affiliated refinery had constrained feedstock supply. Formosa was expected to ramp up base oil production this month as maintenance work was anticipated to be completed.

Group III availability was plentiful in China, despite the turnaround at a local Group III unit that started in late April and was expected to last until early June. Offers of Middle East and Northeast Asian cargoes abounded, but buying interest has declined.

In terms of imports, there was talk about a 1,000-metric ton cargo likely to be shipped from Thailand to Nantong in early June. A 1,200-ton lot was being considered for shipment from Yeosu, South Korea, to Nantong in June. A 500-ton parcel was also under discussion for shipment from Onsan, South Korea, to Zhangjiagang in early June, as well as a 1,300-ton lot for lifting in Onsan to Nantong in the same time frame.

Several other South Korean cargoes were being discussed for shipment to destinations in Asia, including a 2,000-ton parcel expected to be shipped from Onsan to Merak, Indonesia, in June. A 1,000-ton lot was on the table for shipment from Onsan to Ho Chi Minh, Vietnam, in late June. A 2,400-ton parcel was mentioned for shipment from Onsan to Taichung, Taiwan, in the second half of June. A 2,000-ton cargo was also discussed for lifting in Onsan to Jakarta, Indonesia, in June.

In India, the results of India’s general elections – being held between April 19 and June 1 – were expected to affect economic policies moving forward. Market participants therefore felt somewhat guarded regarding demand prospects from downstream lubricant and grease segments. The start of the monsoon season just around the corner and climbing freight rates was also dampening buying interest for imports.

Group I prices were generally steady to lower, and many requirements were being fulfilled by domestic products as they were available at competitive prices. Indian refiners enjoy the advantage of being able to acquire lower-priced Russian crude and were able to offer attractive base oil pricing. This has placed downward pressure on bids for imported lots. CFR prices for Group I grades were heard to have edged down by $5-$10/ton from the previous week, including bright stock. A number of buyers have built inventories ahead of the start of the monsoon season on June 1 and were therefore not interested in acquiring more material.

Group II availability was deemed plentiful, with imports from the United States and Northeast Asia having arrived over the last few weeks to fill the demand gap left by domestic supply. Some of these cargoes were concluded a couple of months ago. However, fewer U.S. cargoes were anticipated to be transacted for shipment to India over the next few weeks as the domestic market has tightened in the U.S., but Northeast Asian cargoes were still being considered. Local prices for the Group II light grade were heard to have declined along with falling gasoil values. Domestic material was preferred in many cases to avoid price risks as well as the logistical issues associated with imports. Import indications on a CFR basis have fallen by $5-$10/ton week on week.

Buying appetite for immediate Group III supplies was steady, but discussions for additional cargoes expected to arrive in the next few weeks was subdued. Prices were largely unchanged, but there was pressure on the 4 centiStoke grade, given ample availability.

Some discussions for import shipments from Northeast Asia and the Middle East were ongoing, with a 12,000-ton lot mentioned for lifting in Jeddah and Yanbu, Saudi Arabia, to Mumbai during May 29-31. About 11,000 tons to 13,000 tons were also mentioned for possible shipment from Daesan, South Korea, to West Coast India in late June.

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

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, but the SN500 was assessed higher by $10/t at $1,050/t-$1,090/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 $1,000/t-$1,030/t, but the 500N inched up by $10/t to $1,110/t-$1,150/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was hovering at $780/t-$820/t, but the SN500 edged up by $20/t to $930/t-$950/t. Bright stock prices were adjusted down by $10/t to reflect lower bids and offers at $1,110/t-$1,150/t, FOB Asia.

The Group II 150N was steady at $870/t-$910/t FOB Asia, and the 500N was up by $10/t at the lower end of the range at $970/t-$1,010/t FOB Asia.

In the Group III segment, 4 cSt, 6 cSt and 8 cSt prices were steady to firm. The 4 cSt grade was assessed at $1,100-$1,140/t, but the 6 cSt was up by $10/t at $1,110/t-$1,150/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.