As the market headed into the New Year’s weekend, activity has quieted down given that this holiday is one of the most widely celebrated festivities in Asia, with many businesses closing for a few days. The lead-up to the holiday rendered few fresh trades because prices had weakened the previous week and buyers delayed purchases, expecting values to continue under downward pressure. However, an arctic storm in the United States has caused several refineries to shut down, and this could result in reduced base oil supplies and a potential need for imports, possibly from Asia.
While it was not yet clear whether the unplanned shutdowns at several refineries along the U.S. Gulf Coast during Winter Storm Elliott would have an impact on base oil availability, market players kept an eye on possible product shortages. A similar situation had emerged during a freezing weather snap in February 2021, when several U.S. base oil plants were forced to shut down due to power outages and equipment failures. Most buyers and suppliers enter the new year with low inventories and any supply disruptions would have a greater impact than during other times of the year, sources conjectured.
While Asian business was generally subdued, several South Korean cargoes were discussed for shipment in the next few weeks, as participants rushed to finalize business ahead of the New Year holiday. Participants were also watching freight rates because they have steadily increased throughout 2022 and the upward pressure was not expected to subside in the first quarter of 2023. A 2,400-metric ton cargo was discussed for shipment from Daesan to Singapore in mid-January. A 4,500-ton cargo was mentioned for lifting in Pyongtaek or Yeosu to Hamriyah, United Arab Emirates, in late Dec. or early Jan. A 6,000-ton lot was being considered for lifting in Daesan and Mailiao, Taiwan, to Hamriyah in Jan. as well. A 2,000-ton parcel was quoted for prompt lifting at a South Korean port to Turkey. An 800-ton cargo was mentioned for shipment from Onsan to Map Ta Phut, Thailand, in early Jan. About 1,000 metric tons were on the table to cover Onsan to Ho Chi Minh, Vietnam, in late Jan.
There were concerns about a demand recovery in China, which had been expected to take place around the Lunar New Year holidays in late January, but it now looked less likely to materialize given a spike in COVID-19 infections and a slowdown in economic activity as the country seemed to be plunging into a health crisis. Following a complete U-turn from the zero-COVID government policies in the previous three years, the lifting of lockdowns has led to an overwhelmed health care system, and infections among medical personnel were rampant, according to an article by The New York Times. Thousands of employees were staying away from their workplaces because of illness or fear of infection, although local governments encouraged people to go to work despite being ill.
The bearish market sentiment translated into more subdued buying interest for base oils and downward pressure on domestic prices as local supply levels mounted. Discussions about imports moving into China was therefore fairly muted, although a 5,000-ton cargo was mentioned for possible shipment from Ruwais, Qatar, to Nantong in mid-January, and a 1,000-ton parcel was likely to be shipped from Onsan, South Korea, to Tianjin in early Jan. A 1,500-ton parcel was also quoted for shipment from Onsan to Huizhou in late Jan.
In India, prices continued to be exposed to downward pressure on lackluster demand and plentiful availability. Domestic suppliers have trimmed Group I prices to encourage purchases and remain competitive against imports from Europe and Southeast Asia. Group II availabilities were considered plentiful, and buyers were therefore confident that delaying purchases would lead to more advantageous pricing and conditions. A number of import cargoes were discussed over the week in shipping circles, with 19,000 metric tons mentioned for possible shipment from Yanbu and Jeddah, Saudi Arabia, to Mumbai in late December. About 5,000 metric tons made up of two grades were expected to be shipped from Malacca, Malaysia, to West Coast India in the first half of January. A 5,000-ton lot was expected to be lifted in Ulsan for Mumbai in January.
While certain grades such as the Group I bright stock showed tighter availability in Asia than other cuts and therefore prices held mostly steady, other grades, such as the Group II 150 neutral and the 500N were more readily available and discussions were taking place at lower numbers. The Group III segment seemed less exposed to the downward pressure given more limited availability of export cargoes from the usual sources.
Spot base oil prices in Asia were assessed as steady to slightly lower for a few grades on softer market fundamentals, although trading was thin, and few transactions surfaced during the week. 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 unchanged week on week. Spot prices for the Group I solvent neutral 150 grade were steady at $940/t-$970/t, and the SN500 was holding at $1,050/t-$1,090/t. Bright stock was assessed at $1,230/t-$1,270/t, all ex-tank Singapore.
Prices for the Group II 150 neutral were stable at $1,010/t-$1,050/t, and the 500N was holding at $1,050/t-$1,100/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was unchanged at $810/t-$850/t, and the SN500 at $830/t-$870/t. Bright stock prices were hovering at $990/t-1,040/t, FOB Asia.
The Group II 150N was assessed lower by $20/t at $820/t-$860/t FOB Asia, and the 500N and 600N cuts fell by $30/t to $850/t-$880/t, FOB Asia.
In the Group III segment, prices were stable. The 4 cSt was assessed at $1,520-$1,560/t, and the 6 cSt was holding at $1,490/t-$1,530/t. The 8 cSt grade was steady at $1,210-1,250/t, FOB Asia, for fully approved product.
Upstream, crude oil futures settled lower on Wednesday on concerns about a demand slump in China given a surge in COVID-19 infections. China is currently the world’s top oil importer. The concerns offset earlier gains prompted by refining disruptions in the U.S. caused by Winter Storm Elliott.
In Russia, President Vladimir Putin banned oil exports to those countries that comply with the price cap imposed by Ukraine’s western allies, although the ban allows for a “special permission” to move product under certain circumstances, which would potentially allow exports to China and India.
On Dec. 29, Brent February 2023 futures were trading at $83 per barrel on the London-based ICE Futures Europe exchange, from $82.54/bbl on Dec. 22.
Dubai front month crude oil (Platts) financial futures for January settled at $79.45 per barrel on the CME on Dec. 28, compared to $78/bbl on Dec. 21.
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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