The Asian base oil market appeared to be gradually returning to a more normal state of affairs, as demand has started to slow down, which typically happens ahead of the holiday period, and some grades have started to lengthen. Consumers and producers focused on lowering inventories for tax purposes and buyers delayed purchases in hopes of securing year-end bargains. At the same time, refiners have increased diesel production in detriment to base oil output because demand and prices for the fuel have strengthened.
The ongoing issues affecting the supply chain such as a lack of raw materials and components, along with transportation delays and increased costs have also had a dampening effect on some lubricant and finished products operations.
This was particularly true for manufacturing related to the automotive industry, but other industrial segments such as the marine oil sector have also been affected.
The softer demand levels and increasing base oil supply have been exerting downward pressure on some spot prices, with the heavy-viscosity grades undergoing decreases due to weaker buying interest for these cuts during the cold winter months, when lighter viscosities are preferred. Conversely, some of the light grades saw moderate increases during the week due to a pickup in demand and reduced availability as refineries adjusted run rates.
The dramatic rise in base oil pricing observed since the end of 2020 and during the first half of the year, which was fueled by product shortages and buyers’ competition for the few cargoes that came into the market has reverted. With the return to production of most facilities in Asia, and the traditional decline in base oil consumption towards the end of the year, it was not surprising to see prices slide.
Demand in some markets such as Southeast Asia was fairly healthy, but a lack of available vessels thwarted the conclusion of transactions in some cases.
Supply of API Group I base oils has improved since most plants have completed turnarounds and were running well, particularly the Japanese plants and several units in Southeast Asia. The increased availability of most Group I grades placed pressure on prices, with bright stock having shown sharp drops. The heavy grades were also more exposed to downward pressure due to the seasonal utilization of lighter grades as mentioned above. Bright stock’s price decline has slowed down, and while values continued to slide, the decreases were less substantial than two months ago.
Group II availability has also increased since Taiwanese producer Formosa Petrochemical resumed production in late September, following an extended turnaround. The producer was heard to be rebuilding inventories and has been able to ship cargoes to China, India and North America in recent weeks. South Korean suppliers have also been moving a growing number of cargoes within Asia, with some of them making their way to China.
Group III grades have been more balanced against demand than their Group I and Group II counterparts, but requirements for these cuts have also started to slip, possibly due to production disruptions at automotive plants and reduced demand for factory-fill lubricants. The Group III sector might undergo some tightening in the first half of next year, when the Hyundai-Shell plant in Daesan, South Korea, was expected to undergo a turnaround, starting in early April for approximately one month. There was no producer confirmation about the shutdown schedule.
In China, there has been a revival of buying interest for imports, as the price of domestic base oils has risen and imports did not seem as steep in comparison any longer. Domestic prices have climbed on account of the strict implementation of a consumption tax on white oils, and most base oils are considered to fall within this category. Low inventories after a period of slow import activity also prompted more buyers to step back into the market. However, lingering logistical issues were hampering some of the export movements from other parts of Asia into China.
There were also fewer supplies of Taiwanese Group II base oils making their way to China on account of the recent turnaround at Formosa Petrochemical’s plant, but a resumption in output should allow the producer to export more cargoes in November. Formosa lifted the domestic list price of its light viscosity grades and lowered the value of its heavy-viscosity cuts due to prevailing fundamentals this week.
Business activity in India was slightly muted due to the celebration of the Diwali holiday, during which a large part of the population travels to see family. Other countries such as Singapore, Malaysia and Pakistan also celebrate the holiday, leading to a generally more subdued trading scene in South Asia. However, base oil suppliers were surprised that base oil demand in India has not let up, despite the observance of the holiday this week, and that consumption of light grades remained strong. Indian buyers had their eye on United States supplies given that prices of regional cargoes have increased and U.S. product had become more competitive.
Spot base oil prices were mixed in Asia this week, with some grades moving up, others slipping and some remaining unchanged. The spot ranges portrayed below have been revised to reflect bids and offers, deals and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were a mixed bag. The Group I solvent neutral 150 grade was higher by $20/t at $850/t-$880/t, and the SN500 was unchanged at $1,050/t-$1,100/t. Bright stock edged down by $20/t to $1,320/t-$1,360/t, all ex-tank Singapore.
Prices for the Group II 150 neutral moved up by $20/t to $890/t-$930/t, while the 500N was lower by $10/t at $1,280/t-$1,320/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was up by $20/t at $720/t-$760/t, but the SN500 was steady at $890/t-$930/t. Bright stock was assessed down by $30/t at $1,170/t-1,210/t, FOB Asia.
Group II 150N moved up by $30/t to $760/t-$800/t FOB Asia, and the 500N and 600N cuts were down by $10/t at $1,080/t-$1,120/t, FOB Asia.
In the Group III segment, prices were steady to softer. The 4 centiStoke was holding at $1,410-$1,450/t and the 6 cSt at $1,420/t-$1,460/t. The 8 cSt grade was assessed down by $20/t at $1,280-1,320/t, FOB Asia, all for fully approved product.
Upstream, crude oil prices inched up on Thursday, after slipping in previous sessions, on expectations that the OPEC+ would adhere to very gradual output increases despite calls from the United States and large importers for higher production quotas to avoid mounting crude values. OPEC+ was scheduled to meet on Thursday and was expected to stick to monthly supply increases of 400,000 barrels per day.
On Nov. 4, Brent January futures were trading at $83.51 per barrel on the London-based ICE Futures Europe exchange, from $84.03/bbl for December futures on Oct. 28.
Dubai front month crude oil (Platts) financial futures for November settled at $78.14/bbl on the CME on Nov. 3, from $81.44/bbl on Oct. 27 (CME note: Settlement prices on instruments without open interest or volume are provided for web users only and are not based on market activity.)
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.
Historic and current base oil pricing data are available for purchase in Excel format.