Weekly Asia Base Oil Price Report

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The base oils market in Asia was being pulled in different directions, with growing base oil supplies exerting downward pressure on spot values, and climbing crude oil futures nudging prices up. The volatility observed in oil prices made buyers more cautious, and many preferred to delay product commitments until July.

Both buyers and sellers were keeping a close eye on crude oil developments as prices have recovered from yearly lows registered earlier this month. At the beginning of June, Brent futures had dipped to below $80 per barrel, but they were hovering near $86/bbl this week due to ongoing tensions in the Middle East and expectations of strong fuel demand during the second half of the year.

Crude futures were little changed on Thursday, with a surprise build in U.S. crude oil and gasoline inventories indicating that demand for the refined products was not as strong as expected. Tensions between Israel and the Iran-backed militia Hezbollah provided some support.

On Thursday, June 27, Brent August 2024 crude futures were trading at $86.25 per barrel on the London-based ICE Futures Europe exchange, from $85.51 on June 20. Futures had traded at $79.99/bbl on June 13.

Dubai front month crude oil (Platts) financial futures for July 2024 settled at $84.62 per barrel on the CME on June 26, from $84.31/bbl on June 18. Earlier in the month, Dubai futures had settled at $78.25/bbl on June 5. (There was no posting on the CME on June 19 due to the Juneteenth holiday in the U.S.)

While a number of base oil grades were exposed to downward pressure given growing supplies, some cuts appeared to be fairly immune to market forces on account of structural product tightness. This was the case of the API Group I base oils, as plant rationalizations over the last several years has led to significantly reduced output in the region, while demand for these grades continued to be strong. The main source of Group I grades within the region is currently Southeast Asia. Market participants said that Group I was available in small volumes from Southeast Asian producers, but it was more difficult to locate bulk cargoes.

The continuous demand for bright stock has encouraged producers like ExxonMobil to develop products that have similar characteristics but do not fall within the Group I category. The company plans to produce an extra heavy neutral Group II base stock – EHC340 MAX – at its Singapore plant, starting in 2025, ExxonMobil officials said during a presentation at the ICIS Base Oils and Lubricants Conference taking place in Singapore this week.

Another presenter confirmed that bright stock demand in China continued to be robust and was expected to remain strong in the foreseeable future because of its applications in the marine, industrial and heavy-duty transportation segments. While there are several Group I plants in China, the heavy-viscosity grades are still structurally short, and the country has to import vast quantities of them.

Base oil demand has slowed in China given seasonal patterns, with buying interest for imports softening over the past few weeks as consumers are able to meet most of their requirements through locally-produced base oils. Domestic prices have been adjusted down, making them more competitive against imports as well. Congestion at several ports in the region and firm freight rates also led buyers to look for domestic material.

There was also an abundance of Group II offers, and while the sole Taiwanese Group II producer, Formosa Petrochemical, has been forced to reduce the volumes it ships to China every month due to the reimposition of import duties of 6% on Taiwanese imports, there appeared to be plentiful domestic base oils to fill any supply gaps. The increasingly ample supply of Group II grades, together with falling prices, have encouraged buyers to use more Group II cuts in Group I applications whenever possible.

Chinese Group III suppliers have adjusted prices down to maintain or gain market share, with a local producer heard to be offering competitive prices against those of imports. The restart of a Chinese Group III plant that has been off-line for quite some time also placed pressure on values.

In another key market, India, base oil demand has slowed because of the start of the monsoon season in early June. The heavy rains cause flooding and transportation disruptions, so buyers prefer to secure product ahead of time and current demand has therefore weakened.

The presence of competitively priced domestic volumes placed pressure on buying and selling indications for imports, despite the recent uptick in crude oil and feedstock prices. On a CFR India basis, Group I prices fell by $15/ton to $25/ton; Group II values edged down by $10/t-$20/t. Price ideas for Group III grades were relatively unchanged given thin business discussions.

Participants kept an eye on the status of the SK-Pertamina plant in Dumai, Indonesia, that was originally scheduled for a turnaround in May, but the program was heard to have been postponed to July. This will likely reduce the regional short-term Group III overhang next month.

A couple of South Korean base oil cargoes were discussed in the previous week, with a 4,300-ton lot expected to have been shipped from Yeosu to Taiwan in mid June. A 7,500-ton cargo was also mentioned for shipment from Yeosu to Merak, Indonesia, in the second half of June.

Base oil spot prices in Asia were steady-to-softer, with indications for some grades edging down due to declining demand and growing inventories. 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 was steady at $1,280/t-$1,320/t, all ex-tank Singapore.

Prices for the Group II 150 neutral were unchanged at $990/t-$1,020/t, but the 500N edged down by $10/t to $1,090/t-$1,130/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was steady at $760/t-$800/t, but the SN500 fell by $10/t to $920/t-$940/t. Bright stock prices softened by $10/t as well to $1,070/t-1,110/t, FOB Asia.

The Group II 150N was lower by $20/t at $830/t-$870/t FOB Asia, and the 500N was also assessed down by $20/t at $930/t-$970/t FOB Asia.

In the Group III segment, 4, 6 and 8 cSt prices were softer from the previous week and remained under pressure due to plentiful supplies. The 4 cSt grade was lower by $10/ton at $1,090-$1,130/t, and the 6 cSt was down by $10/t as well at $1,100/t-$1,140/t. The 8 cSt cut slipped by $10/t to $980-1,020/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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