On July 21, Brent September futures were trading at $104.32 per barrel on the London-based ICE Futures Europe exchange, from $98.32/bbl on July 14 and $104.65/bbl on July 7.

Dubai front month crude oil (Platts) financial futures for August settled at $99.24 per barrel on the CME on July 20, compared to $92.20 on July 13 and $92.71/bbl on July 6.

The lower crude oil and related fuel and feedstock prices have relieved some of the pressure on refiners, who were basing many of their base oil refining decisions in relation to competing fuel prices. Some had cut back base oil output in favor of fuels because of tight conditions and skyrocketing prices. Base oil managers had to adjust prices up to preserve output levels and continue covering healthy requirements.

However, base oil and fuel demand appeared to have slowed down in many key consuming countries such as China, where renewed COVID-19 related lockdowns and restrictions have hampered business and manufacturing operations in several big cities. Financial struggles and lower-than-anticipated GDP growth have also spooked consumers, who have become more cautious in terms of purchases, and that includes automotive orders and lubricant consumption.

China is the world’s largest vehicle market, and automotive sales recovered in June after plunging in April and May. The June recovery was ascribed to government incentives to support the industry and foster an uptick in production, particularly after a strict lockdown period in Shanghai, data from the China Association of Automobile Manufacturers showed. “June’s figure followed a 12.6% drop recorded in May and a 47.6% plunge in April, when pessimism grew over the health of the Chinese economy on the back of strict mobility curbs to fight the pandemic, supply chain issues due to the prolonged war in Ukraine, and shortages of processor chips,” an article in TraderEconomics.com explained. 

Appetite for base oil imports has been lackluster in China in recent weeks, with a large portion of demand being covered by domestic supplies. Even Taiwanese API Group II barrels, which had typically moved to China in large quantities to meet spot and contract requirements, have decreased over the last three months, with many of the Taiwanese cargoes moving to other destinations such as India.

Northeast Asian suppliers continued to explore options to ship products to other regions and avoid mounting inventories, including faraway ports in the Americas and Africa. A 4,000 metric ton South Korean cargo was heard to have been discussed for shipment from Daesan to Brownsville, United States, in early August. A second South Korean parcel was mentioned for shipment from Ulsan to Durban, South Africa, in August.

Interest in moving smaller shipments such as flexibags from Asia has grown as consumers avoid committing to larger volumes on account of feedstock price volatility and the risk of purchasing base oils at high prices that may weaken later. Firm freight rates and limited vessel space were also thwarting some of the proposed transactions.

South Korean producers continued to move cargoes to India, but demand in that country has been partly dampened by the monsoons and logistical disruptions to deliveries and manufacturing activities. Nevertheless, there has been keen interest in Group I light-viscosity supplies and prices remained firm. On the other hand, prices for the heavier grades were under pressure.

Group I supplies were still deemed tight in Asia, as production levels have decreased in recent years with plant closures and availability from regular sources such as Southeast Asia and Japan described as limited. An unplanned shutdown at a Thai facility exacerbated the tightness, but production was expected to have resumed. Cargoes of the light-viscosity grades commanded higher prices week on week due to the scarce supplies. Bright stock was also snug in China where demand for the heavier grades typically flourishes during the warm months, and indications for imports into that country have edged up on a weakening of the local currency.

At the same time, more Group I cargoes were likely to become available as demand was starting to show signs of cooling and plants have resumed output, and this was exerting downward pressure on pricing, particularly on domestic price indications.

Group II volumes have become more plentiful within the Asian supply system and prices were more stable as a result. A number of Chinese cargoes have been detected in the market, as light viscosity grades have lengthened on lackluster demand in China. The country is still structurally short on the heavier grades and as such, fewer cargoes typically make it to the export arena. Since demand in China has softened, more cargoes appear to be available for shipment to alternative markets such as India. Several South Korean and Taiwanese cargoes were being worked on for shipment to India this month and in August as well.

Group III demand was characterized as steady and regional supplies, together with imports from the Middle East, were considered sufficient to cover current requirements, with prices remaining largely stable. Interestingly, it was heard that some Group III volumes were shipped from India to the Americas as prices there were more attractive.

Spot base oil prices in Asia were mostly holding at unchanged levels this week while participants assessed product needs and pricing, with only bright stock moving down slightly. 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 mostly unchanged from the previous week. Spot prices for the Group I solvent neutral 150 grade were heard at $1,170/t-$1,200/t, and the SN500 at $1,360/t-$1,400/t. Bright stock was hovering at $1,470/t-$1,510/t, all ex-tank Singapore.

Prices for the Group II 150 neutral were heard at around $1,320/t-$1,360/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 experienced a downward market adjustment of $20/t to $1,310/t-1,360/t, FOB Asia.

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

In the Group III segment, prices were also stable. The 4 centiStoke was steady 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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