Crude oil futures rose on Wednesday and continued on an upward trend on Thursday as United States Federal Reserve officials indicated that interest rates have likely reached their peak, and there were expectations that interest rate cuts would be implemented in June. “Lower interest rates typically stimulate economic growth, which fuels crude oil demand,” CNBC.com reported. Meanwhile, U.S. refineries have resumed operations, following weather-related disruptions, and this boosted crude oil demand in the short term.

On Thursday, Feb. 22, Brent April 2024 crude futures were trading at $83.37 per barrel on the London-based ICE Futures Europe exchange, from $80.98/bbl on Feb. 15.

Dubai front month crude oil (Platts) financial futures for March 2024 settled at $81.76 per barrel on the CME on Feb. 21, from $80.48/bbl on Feb. 14.

Refiners were monitoring crude oil and gasoil prices as these impacted refining decisions, with producers adjusting base oil output down whenever middle distillates prices increased and offered better margins.

API Group I plants have mostly resumed production in Southeast Asia and producers were heard to have offered several API Group I cargoes via tenders and trading companies. Suppliers have raised offers because supplies in general were slim given recent and ongoing plant shutdowns. The prices were considered too high by buyers as they had the option of purchasing Group II products at similar levels, with the exception of Group I bright stock, which is difficult to replace. As a result, prices for the light-viscosity and heavy-vis Group I cuts have lost some territory, while bright stock continued to edge up.

It was also heard that a producer with production sites in Singapore had shipped Group II products to Europe to meet commitments there while its plant in Rotterdam, the Netherlands, completes a two-month turnaround. The producer’s supplies were tight system-wide, according to sources.

Nevertheless, Group II base oils seemed more plentiful than Group I grades, but they were not long either given a recent unplanned outage at the Taiwanese Group II plant and a partial shutdown at a South Korean refinery. The Taiwanese producer, Formosa Petrochemical, was forced to shut down its Group II base oils plant due to a fire at the associated refinery in late January, but the plant was restarted earlier this month. Cargoes from the Taiwanese and South Korean suppliers often find their way to India, but a number of large U.S. Group II cargoes have been lined up for shipment to India this month and the next, limiting buying appetite for regional parcels.

A 10,000-ton lot was on the table for prompt shipment from the U.S. Gulf to Mumbai, India, and the United Arab Emirates. A second 10,000-ton parcel was also mentioned for possible shipment from the U.S. Gulf to West Coast India in the second half of March. A 7,000 to 8,000-metric-ton cargo was expected to be shipped from Houston, Texas, to West Coast India in the first half of March.

There were also reports that an 11,000-ton cargo made up of four base oil grades was discussed for shipment from Mailiao, Taiwan, to Mumbai on March 20-26. About 4,000 tons of rubber process oil was also mentioned for possible shipment from the United Arab Emirates to West Coast India on Feb. 20-25.

South Korean suppliers have also been on the lookout for export opportunities into more distant destinations such as Latin America but offers have turned less competitive given rising freight costs and difficulties in locating vessel space. Even so, there were a couple of parcels concluded for shipment from South Korea to the West Coast of South America, with a 3,800-ton lot quoted for lifting in Ulsan and delivery in Callao, Peru, and Quintero, Chile, in late February to early March. A 4,000 to 5,000-ton parcel was also discussed for shipment from Ulsan or Yeosu to Hamriyah, U.A.E., in the first half of March.

Indian buyers were anticipated to step out to secure base oils for lubricant production as finished products consumption picks up ahead of the end of the fiscal year on March 31. Despite some dissent against the government such as a farmers’ strike and other protests during the week, the Indian economy was anticipated to expand and demand for consumer goods such as cars and motorcycles was expected to remain strong.

Base oil prices for Group I in India edged up slightly on tight regional supplies and reduced domestic output due to production hiccups at local plants. Group II availability was deemed adequate to plentiful, with several import cargoes due to arrive over the next few weeks and prices holding steady. Group III base oils were on the long side and price ideas have therefore softened.

Despite recent increases in the use of Group III grades for automotive applications in Asia given stricter fuel efficiency and emissions rules, an ongoing Group III plant turnaround in Malaysia, and upcoming maintenance in South Korea, supplies were still deemed ample compared to demand, exerting downward pressure on pricing.

The Petronas Group II and Group III refinery in Melaka, Malaysia, was heard to have started a maintenance program in late January that was expected to be completed in early March, although most of the output is used for the company’s own downstream operations and only limited volumes are sold on the spot market. SK Enmove planned to take its two Group III units off-line in Ulsan, South Korea, in mid-March and was heard to be building inventories and restricting spot sales to meet contractual obligations during the outage.

There were also reports that the SK-Pertamina Group III plant in Dumai, Indonesia, would be undergoing a partial shutdown some time during the first or second quarter, but the effects were expected to be minimal as the producer will build inventories to cover commitments during the outage.

In China, demand was anticipated to gradually rise as participants returned to manufacturing and business activities following the Lunar New Year or Spring Festival holidays, which officially started on Feb. 10 and ended on Feb. 17, although some companies are closed for a few more days. Demand was particularly expected to be stronger from the automotive and industrial segments, followed by agriculture, in March as the warmer temperatures arrive and the spring season jumps into full swing. Activity will also largely depend on economic conditions over the next few months, as signals were still somewhat mixed.

Buying interest for imports of the heavier grades was likely to be more robust than for the lighter grades given that China is still structurally short on the heavy viscosities, despite additional base oil capacity added in recent years. The country is becoming more independent in terms of all base oils and less dependent on imports, as it also has new Group III facilities.

Base oil spot prices in Asia continued to show diverging trends, with some values weakening due to ample availability and softer demand, some remaining steady, and others strengthening on tightening conditions. 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 firm from the previous week. The Group I solvent neutral 150 grade was unchanged at $870/t-$910/t, and the SN500 was steady at $1,000/t-$1,030/t. Bright stock climbed by $10/t to $1,220/t-$1,260/t, all ex-tank Singapore.

Prices for the Group II 150 neutral were holding at $950/t-$980/t, but the 500N moved up by $10/t to $1,000/t-$1,040/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was holding at $760/t-$800/t, while the SN500 was assessed down by $10/t to reflect current discussions at $880/t-$910/t. Bright stock prices were firm at $1,070/t-1,110/t, FOB Asia on tight supply.

The Group II 150N was stable at $790/t-$830/t FOB Asia, and the 500N was assessed higher by $10/t at $840/t-$880/t FOB Asia.

In the Group III segment, 4 centiStoke, 6 cSt and 8 cSt prices were steady to softer. The 4 cSt fell by $20/t to $1,070-$1,100/t, and the 6 cSt also declined by $20/t to $1,090/t-$1,130/t. The 8 cSt grade was unchanged 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.