This week, prices plunged early in the week to a twelve-week low on fears about a worldwide recession, but spiked on Thursday, settling up by almost $4 per barrel as snug supply outweighed those concerns.

On July 7, Brent September futures were trading at $104.65 per barrel on the London-based ICE Futures Europe exchange, from $114.41/bbl for August futures on June 30. A year ago, Brent was trading in the mid $70s/bbl.

Dubai front month crude oil (Platts) financial futures for August settled at $92.71/bbl on the CME on July 6, from $104.03/bbl on June 29.

Aside from keeping an eye on crude oil and feedstock prices, Asian market participants were closely watching conditions in the key market China. The Chinese economy has shown signs of cooling on the back of pandemic-related lockdowns, rising unemployment, and weaker consumer confidence. In May, urban unemployment in major cities hit 6.9%, the highest since the National Bureau of Statistics survey started in 2013, according to Bloomberg. Unemployment was partly attributed to businesses closing down during the lockdowns and then remaining closed on fears of being held responsible for COVID-19 outbreaks, a crime punishable by harsh sentences due to the government’s strict zero-COVID policies. There is also little in terms of unemployment subsidies, and even the so-called “consumption vouchers” that local governments distribute – often meant to support the automotive and electronics industries in their areas – do not help improve the situation very much, the Bloomberg article noted.

The current economic climate in China was impacting consumption levels, including those of fuels and lubricants, and this was also affecting base oil demand. Domestic supply of base stocks was deemed sufficient to cover most requirements and importers have shown subdued interest in moving large volumes into the country as costs were considered to be too steep, with the exception perhaps of the heavier grades, as China is structurally short on those cuts. There were discussions of a small base oil cargo to be shipped from Yeosu, South Korea, to Tianjin in July. A 2,350 metric ton cargo made up of five grades was expected to be shipped from Onsan, South Korea, to Jingjiang and Nantong in mid-July. About 2,000 metric tons were also discussed for lifting in Singapore to Zhuhai in late July. Another 1,000 metric tons were on the table for shipment from Singapore to Tianjin this month as well.

Taiwan typically exports large portions of its API Group II output to China to cover term contracts and spot requirements, but it was heard that volumes have been reduced and more Taiwanese cargoes were moving to other destinations such as India and the Middle East. This week, it was heard that a 3,500 metric ton parcel was being discussed for shipment from Mailiao to Hamriyah, Sharjah, United Arab Emirates, in early August.

Supply levels from domestic producers in China appeared to have improved, with plants restarting following turnarounds. Three naphthenic base oil plants started maintenance in June, but they were expected to have restarted operations. Some paraffinic plants were heard to be running at reduced rates due to high feedstock costs and concerns that current domestic consumption would not absorb the volumes being produced. Surplus cargoes were heard to have been offered for export to Southeast Asia.

Group I supplies continued to attract buying interest in Asia, as availability remained limited given the smaller number of Group I base oil plants and refineries running fuel units at high rates to manufacture fuels, thereby limiting availability of feedstocks for base oil production. Fuels such as diesel were competing with base oils as fuel prices have skyrocketed in recent weeks on steep crude oil values and reduced supplies. Japan was heard to be steadily exporting base oils into various destinations in the region, with an 8,500 metric ton lot made up of four grades being discussed for lifting in Wakayama to Singapore in mid-August. Separately, 3,500 metric tons of two grades were on the table for shipment from Singapore to Merak, Indonesia, in early July.

It is the continued interest in Group I heavy grades and bright stock against strained supply levels that has led Shell to delay the permanent shutdown of its Pulau Bukom Group I plant in Singapore, which was scheduled to take place this month, according to sources. The site produces 7,400 barrels per day of Group I base oils, according to Lubes’n’Greases Base Stock Plant Data, which are then processed at Shell’s Tuas lubricants plant.

ExxonMobil also announced at the ICIS Base Oils Conference in Windsor, U.K., on June 26-28 that its expanded Group II base oil plant in Singapore was scheduled to start production in 2025, slightly delayed from an original start-up date in 2023. (For more details, see “ExxonMobil Continues Group II Expansion” in the July 1 issue of Lube Report Asia).

In another key market, India, demand has held steady in some areas and was more muted in others due to the impact of the monsoons. The heavy rains cause flooding and transportation disruptions, and blenders tend to reduce the base oil volumes they purchase so as not to carry bulging high-priced inventories. At the same time, given the difficulties in reaching some areas, blenders like to keep extra stocks to keep manufacturing operations running, as raw material deliveries may suffer delays.

The ongoing turnaround at a Group II base oil plant in India has tightened domestic availability of products, but any shortages were made up by regional imports and supplies from other domestic sources. A gap between buyers’ and sellers’ price ideas kept spot business on the subdued side.

Softer base oil consumption in Asia has led producers to seek export opportunities in other regions like Europe and the Americas. The restart of a few plants in Europe meant that supply might be improving in the short term after showing tight conditions over the last few months. Keen buying appetite from the United States and South America has led to discussions of South Korean cargoes moving to ports in those areas, with 5,000 to 10,000 metric tons being considered for shipment from Daesan to the U.S. Gulf between mid-July and mid-August. About 10,000 metric tons were being considered for shipment from Ulsan to Havana, Cuba, or the U.S. Gulf in the second half of July.

Spot base oil prices in Asia were again largely stable this week, as it was considered a transitional period where many participants have assumed a wait-and-see position to assess developments and future product needs. The ranges portrayed below reflect bids and offers, as well as deals and published prices widely regarded as benchmarks for the region.

Ex-tank Singapore prices were unchanged, with spot prices for the Group I solvent neutral 150 grade assessed at $1,170/t-$1,200/t, and the SN500 at $1,360/t-$1,400/t. Bright stock was holding at $1,470/t-$1,510/t, all ex-tank Singapore.

Prices for the Group II 150 neutral were gauged at $1,310/t-$1,350/t, while the 500N was unchanged at $1,380/t-$1,420/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was steady at $1,090/t-$1,130/t, and the SN500 was unchanged at $1,250/t-$1,290/t. Bright stock was hovering at $1,330/t-1,380/t, FOB Asia.

The Group II 150N was holding at $1,270/t-$1,310/t FOB Asia, and the 500N and 600N cuts assessed unchanged at $1,320/t-$1,370/t, FOB Asia.

In the Group III segment, prices were also stable. The 4 centiStoke was assessed at $1,650-$1,690/t, and the 6 cSt at $1,630/t-$1,670/t. The 8 cSt grade was holding at $1,360-1,400/t, FOB Asia, all 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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