The tide seems to have turned, at least temporarily, in Asian base oil markets, with spot prices stabilizing or moving up slightly, reversing the sharp downward trend that started in late July. This phenomenon was partly attributed to a bout of buying ahead of holidays in a few countries, and the need to replenish stocks as buyers had held off on purchases given weakening prices. Several refiners have also opted for lowering production rates in order to avoid a product buildup during the last quarter of the year, and this has helped tighten the supply and demand ratio.
Whether the upward trend would persist in coming weeks was difficult to predict, as signs were mixed in some of the key markets in Asia, such as China and India.
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In China, ongoing COVID-19-related lockdowns and an economic slowdown continued to impact demand for fuels and base oils. Nevertheless, buying interest for imports has started to pick up ahead of the Golden Week holiday celebrated in China on Oct. 1-7. Given that some indications have started to edge up in Northeast Asia, consumers worried that prices might be higher after the holiday period and have come back to the market. While a large portion of the country’s demand can be met through base stocks produced at local plants, there was still a shortage of certain cuts, such as the Group I high-viscosity grades and bright stock. Additionally, the government’s crackdown on some refiners due to tax issues has also led to unplanned shutdowns or reduced operating rates at several facilities.