Balanced-to-tight conditions in the Group I segment offered support to current price indications. With the number of plants that produce Group I grades steadily falling over the last couple of decades, and international sanctions thwarting the production and export of Iranian material, the availability of Group I has shrunk, while demand of most grades was still quite healthy. This has caused prices to hover at steep levels for most of the first part of the year.

Southeast Asia still features as one of the main sources of Group I grades, and exports from countries such as Thailand, Indonesia and Singapore continued to be sought after in the region. However, due to plant turnarounds earlier this year and robust domestic demand in these countries, availability of May spot export cargoes was limited to non-existent, supporting current prices.

In key base oil consumer countries such as China, Group I bright stock is still in high demand because it is a difficult cut to replace, and the country is short on bright stock. The heavy-viscosity base oils remained on the tight side given the country’s structural deficit of these grades. The shutdown at a large local Group I plant for a maintenance program that started in mid-April exacerbated the situation and had driven bright stock prices up before the Labor Day holidays. Nevertheless, interest in imports has softened compared to years past because of increased domestic production of most base oil grades.

Group II heavy-viscosity grades were deemed tight in China, but uncertainties in various downstream segments were dampening demand. The sole Taiwanese Group II producer, Formosa Petrochemical, generally ships substantial volumes to China, but this trend appears to have changed in recent months. The producer was focusing more on meeting domestic demand, while a partial shutdown at its Group II plant in Mailiao caused by upstream maintenance at the affiliated refinery also restricted spot availability.

A few base oil facilities in China were heard to be running at reduced rates or were shut down for maintenance, leading to tighter conditions in some segments, including the Group III segment, as a producer was expected to start a turnaround in late April. A second local producer has improved the quality of its Group III base oils and ample availability from the supplier was expected over the next few months, while a Middle East refiner was hoping to expand its market share in China and was planning to offer increased volumes into that country, along with competitive pricing. However, the turnaround at the SK-Pertamina plant in Dumai, Indonesia, this month, could put a dent in regional short-term Group III inventories too. Later in the year, S-Oil has scheduled a turnaround at its Onsan plant in September and October and will build inventories ahead of the outage.

There were a few South Korean Group II cargoes offered for June shipment at elevated levels compared to April offers. A few cargoes of South Korean origin for shipment to China were discussed during the week, but it was not clear whether they were of Group II or Group III grades. About 5,000 metric tons of base oils were anticipated to be shipped from Onsan to Zhangjiagang, Jingjiang and Zhenjiang in mid-May. A 2,350-ton parcel made up of four grades was on the table for shipment from Onsan to Zhenjiang the first week of June. An 1,800-ton lot was quoted for lifting in Onsan to Huizhou in mid-June. A 1,200-ton lot was mentioned for shipment from Onsan to Tianjin in late June/early July. About 17,000 tons were expected to be shipped from Singapore to China in late May to early June, likely for intra-company lubricant operations.

Other potential South Korean shipments included an 1,800-ton parcel for shipment from Onsan to Taichung, Taiwan, in late May. A 1,200-ton cargo of three grades was likely to be loaded in Onsan for Bangkok, Thailand, for late-May delivery as well. An 1,800-ton lot was on the table for shipment from Onsan to Merak and Tanjung Priok, Indonesia, for mid-June delivery. A 4,000-ton parcel was mentioned for prompt shipment from South Korea to Rotterdam, Netherlands.

The resumption of production at SK Enmove’s plant in South Korea, following a turnaround that started in mid-March, was not expected to have a sudden and significant impact on Group III availability, as the producer had been able to meet contractual obligations during the outage, but had limited spot availability. However, the restart seemed to have more of a psychological effect in that it created the perception that more Group III volumes would be coming into the market at a time when additional Middle East cargoes were expected to be on offer.

In India, balanced-to-tight conditions in the Group I segment supported the current price levels for imports. Buyers expected to see additional volumes entering the market this month if a local producer increases its operating rates, while they also preferred to rely more heavily on domestic product as prices were more attractive than those for imported products.

Supplies of Group II grades were also on the snug side, and regional sellers, including South Korean suppliers, have increased their offer levels. However, Indian buyers were resisting these prices as a potential slowdown in lubricants markets loomed with the start of the monsoon season in June. The expected delivery of imported cargoes from the U.S. and Asian origins were also assuaging any anxiety about possible supply shortages. Some buyers kept an eye on offers as they preferred to build inventories ahead of the heavy rain season, when transportation can be disrupted, so there was a chance that more transactions would be finalized in the next few weeks.

Group III grades were more readily available and there were expectations that additional Middle East material would be offered this month as this segment has started to show signs of being oversupplied, and demand in other regions has started to weaken as well.

India is holding the world’s largest general election, which started on April 19 and will finish on June 1, with results to be announced on June 4. While the process was not anticipated to have a huge impact on base oils operations per se, a change in government policies might impact important related segments such as the automotive, agricultural and construction industries.

A number of base oil shipments were under discussion over the week, including a 2,500-ton to 2,900-ton cargo for prompt shipment from Malacca or Port Klang, Malaysia, to Jawaharlal Nehru Port and Pipavav, India. About 10,000 tons to 20,000 tons have been earmarked for shipment from the U.S. Gulf to West Coast India and/or Hamriyah, United Arab Emirates, this month as well.

While steeper crude oil and feedstock prices had underpinned higher prices for most base oil grades in Asia in the previous weeks, slipping values this week were eroding the support. Brent crude futures started May off with a significant drop, falling by 3% to a seven-week low near $83 per barrel. On Thursday, futures continued to slide due to rising U.S. stockpiles, a sign of increased supply against softer demand. Additionally, optimism in connection to a potential ceasefire in the Middle East as U.S. Secretary of State Antony Blinken was working on a deal between Israel and Hamas contributed to a reduction in the commodity’s risk premium. Brent crude was hovering close to 10% lower than at its April peak of around $92 per barrel – the highest level since October – which was prompted by a possible escalation of the conflict in the Middle East.

On Thursday, May 2, Brent July 2024 crude futures were trading at $84.10 per barrel on the London-based ICE Futures Europe exchange, from $87.96/bbl for June futures on April 25.

Dubai front month crude oil (Platts) financial futures for June 2024 settled at $82.67 per barrel on the CME on May 1, from $86.95/bbl for May futures on April 17.

Base oil spot prices in Asia were steady-to-firm again this week, with prices for some grades edging up on tighter supplies and increased bid and offer levels. 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 generally steady. The Group I solvent neutral 150 grade was holding at $900/t-$940/t, and the SN500 was unchanged at $1,030/t-$1,070/t. Bright stock was firmly positioned within a $1,290/t-$1,320/t range, all ex-tank Singapore.

Prices for the Group II 150 neutral were hovering at $980/t-$1,010/t and the 500N was heard at $1,090/t-$1,130/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was holding at $770/t-$810/t, and the SN500 was steady at $910/t-$930/t, although many bids were slightly below this level at around $900/t. Bright stock prices were steady at $1,100/t-$1,140/t, FOB Asia on tight supply.

The Group II 150N was up by $10/t at the low end of the range at $850/t-$890/t FOB Asia, and the 500N range was up by $10/t at $950/t-$990/t FOB Asia.

In the Group III segment, 4 centiStoke, 6 cSt and 8 cSt prices were stable, following a few weeks of consecutive adjustments. The 4 cSt grade was assessed at $1,090-$1,120/t, and the 6 cSt was heard at $1,080/t-$1,120/t. The 8 cSt cut was assessed at $990-$1,030/t. All indications are FOB Asia 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.