Weekly Asia Base Oil Price Report

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A seasonal slowdown and growing supplies have started to exert downward pressure on spot prices in Asia. However, some grades remained tighter than others and this sheltered values from immediate declines. Crude oil and feedstock prices strengthened from lower levels seen in early June, propping up base stock pricing, while concerns about geopolitical tensions and transportation disruptions in the Middle East also offered some support.

Crude oil futures have slipped from highs observed in April but moved up during the week on expectations of a tightening supply-demand balance in the third quarter. Both oil benchmarks were up about 4% this week, following reports of cooling inflation in the United States, which might encourage the U.S. Federal Reserve to decrease interest rates later in the year, even though the organization left them unchanged at a meeting held on Wednesday.

On Thursday, June 13, Brent August 2024 crude futures were trading at $82.75 per barrel on the London-based ICE Futures Europe exchange, from $79.99/bbl on June 6. Futures had traded near $82/bbl on May 30.

Dubai front month crude oil (Platts) financial futures for July 2024 settled at $82.31 per barrel on the CME on June 12, from $78.25/bbl on June 5, and had closed at $83.49/bbl for June futures on May 29.

While crude oil price fluctuations are not immediately reflected in base oil prices, values do influence price direction and market sentiment. Given recent oil price volatility, participants remained cautious in terms of base oil purchases as they preferred to avoid acquiring large volumes that may lose value later if crude prices were to tumble.

Transportation disruptions related to Houthi rebel attacks on commercial vessels in the Red Sea and port congestion in some areas have caused freight rates to increase and trading patterns to change. These factors have raised prices for some Asian shipments, limiting the number of takers and freeing more material in the region as well.

Even so, the supply and demand balance for some base oil grades within the API Group I and Group II categories remained snug, particularly the light-viscosity cuts, offering support to spot prices and triggering fewer changes week on week. Despite the tighter conditions for some cuts, there was growing pressure on base oil prices because there has been a slowdown in demand from many countries, particularly those that are affected by the rainy season.

At the same time, most base oil plants have been running at top rates given advantageous prices versus competing fuels, coupled with steady domestic demand. There was ample supply in Group I-producing nations such as Thailand, Indonesia and Singapore, and domestic requirements have started to ease there, allowing for more spot cargoes to enter the supply system.

Perhaps due to seasonal factors, there was increased availability of the heavy-viscosity grades–particularly Group I bright stock – and offers have been adjusted down. Bright stock prices had shown a firming trend since the beginning of the year, but more plentiful supplies were placing pressure on pricing. There was still keen interest in bright stock from China due to robust demand from the marine, rail and industrial segments, but buyers have started to resist the steeper offer levels for Southeast Asian material.

The Group II segment has also seen an increase in availability, with most plants having resumed production after partial or complete turnarounds and other production issues in the first and second quarters.

A recent development that may lead to increased availability of Group II grades in Northeast Asia was the decision by the Chinese Custom Tariff Commission of the State Council to reinstate tariffs on several petrochemical imports from Taiwan – which had so far benefitted from preferential tariff rates under the Economic Cooperation Framework Agreement – with a 6% duty expected to be imposed on base oils as of June 15. This means that the sole producer of Group II grades in Taiwan, Formosa Petrochemical, that had so far been exporting large volumes to China every month –

almost half of its production–may have to find other outlets. The tariffs may also force the supplier to reduce FOB pricing into China so as to remain competitive, or importers would have to raise delivered prices of Taiwanese product to cover the tariffs, turning these offers less competitive against locally-produced base oils.

Spot buying interest for imports has been lackluster in China in any case, despite ongoing maintenance at a local Chinese refinery, and a prolonged shutdown at a second plant in China since March that was reported to have been completed. Two other Chinese Group II plants were expected to undergo turnarounds from June until July. While the shutdowns may tighten domestic availability, an increasing number of buyers preferred to rely on local output and buying appetite for imported spot cargoes has therefore declined. Many consumers would rather buy from local producers to avoid longer lead times and increased exposure to price fluctuations.

Similar fundamentals have started to become more pronounced in the Group III segment in China. With an increased number of domestic plants producing Group III, the country’s reliance on imported volumes from the Middle East and Northeast Asia has dwindled. The turnaround at a local Group III unit that started in late April and was expected to last until late May/early June has partially reduced supplies for the time being. A second producer was heard to be running well and offering competitive pricing to gain market share.

Supply of Group III grades continued to be more than adequate in Asia given high operating rates and attractive Middle East offers. The restart of the SK Enmove plant in South Korea in early May, after completion of a turnaround that started in mid-March, was also anticipated to increase availabilities. The turnaround at the SK-Pertamina plant in Dumai, Indonesia, that was originally scheduled for May, has been postponed to July, and will reduce regional short-term Group III inventories. The producer was expected to build inventories to cover term requirements, but spot cargoes will be more limited. 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 was expected to build inventories ahead of the outage as well.

In India, spot base oil prices were generally under downward pressure due to growing supplies and weakening demand. Buyers have by and large built inventories ahead of the start of the monsoon season in June and showed muted interest in fresh cargoes. Participants were also waiting to see the potential impact on the country’s economic policies of the recent general elections and a new coalition government.

Group II prices in particular succumbed to downward pressure, with CFR India indications edging down by $10 per metric ton to $15/ton week on week as domestic prices were deemed more competitive given ample locally-produced supplies. However, a turnaround at a local Group II plant starting in mid-June may put a dent on domestic Group II volumes.

Demand for the Group III grades were largely steady in India, with plentiful supplies of Asian and Middle Eastern origin able to cover most requirements, although a lengthening of the 4cSt grade led to downward pressure.

In terms of Indian imports of South Korean base oils, about 10,000 metric tons to 18,000 tons of two grades were mentioned for shipment from Daesan or Pyongtaek to West Coast India in late June/early July. A large shipment was also heard under discussion, involving 30,000 tons to 40,000 tons to be lifted in Yeosu to Mumbai in the first half of July.

Base oil spot prices in Asia were steady-to-slightly lower, with indications for some grades slipping on weakening 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-softer. The Group I solvent neutral 150 grade was steady at $890/t-$930/t, and the SN500 was also unchanged at $1,050/t-$1,090/t. Bright stock edged down by $10/t to $1,290/t-$1,320/t, all ex-tank Singapore.

Prices for the Group II 150 neutral were holding at $1,000/t-$1,030/t, and the 500N was steady at $1,110/t-$1,150/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 were assessed at $770/t-$810/t, and the SN500 was unchanged at $930/t-$950/t. Bright stock prices slipped by $10/t to $1,100/t-$1,140/t, FOB Asia.

The Group II 150N edged down by $10/t to $860/t-$900/t FOB Asia, and the 500N was also softer by $10/t at $960/t-$1,000/t FOB Asia.

In the Group III segment, 4 centiStoke, 6 cSt and 8 cSt prices were stable. The 4 cSt grade was assessed at $1,100-$1,140/t, and the 6 cSt was hovering 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.

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