On Thursday, crude oil futures moved up again, with the Brent benchmark settling above $85 per barrel on reports of an unexpected drop in U.S. inflation, which fed hopes of U.S. interest rate cuts in the coming months.

On July 11, Brent September 2024 crude futures were trading at $85.71/bbl on the London-based ICE Futures Europe exchange, from $86.54 on Friday, July 5.

Dubai front month crude oil (Platts) financial futures for August 2024 settled at $84.18/bbl on the CME on July 10, compared with $85.45 on July 2.

Most participants in Asia reported a tight API Group I scenario, as Group I production in Southeast Asia was mostly absorbed by domestic lubricant operations and only smaller cargoes were left for spot export transactions. As a result of the generally tighter conditions in the Group I segment, price indications were steady to firmer.

A fire that broke out at an Idemitsu Kosan refinery in Ichihara, Chiba, Japan, on July 2 injured one person and was put out promptly, appearing to have had limited impact on operations, according to local news reports. The refinery houses a Group I base oils and lubricants plant. No updates about base oil operations could be obtained from the producer directly at the time of writing.

Most Thai and Indonesian export availabilities are placed through tenders early in the month, often igniting buying interest from China. China seems perpetually short on Group I heavy grades – and bright stock in particular appears to be a sought-after grade.

China’s recent addition of base oil plants focused on expanding Group II and Group III capacity, leaving a shortage of the Group I grades. However, there are expectations that an expansion at the PetroChina Fushun Group I plant, which has an existing Group I capacity of 260,000 metric tons per year and is scheduled to start up an additional 70,000 t/y of Group I bright stock capacity in the third quarter of 2024, will help mitigate the lack of bright stock. Demand was expected to remain robust over the next few years, driven by applications in the industrial, marine, railway, agricultural and heavy-duty transportation segments.

In contrast, several Group II plants in China were being run at reduced rates or shut down temporarily to avoid oversupply. The possibility of having too much Group II product was tempered by the fact that fewer Taiwanese cargoes were expected to be shipped to China as the country has reimposed a 6% tariff on Taiwanese refined products, including base oils, which went into effect on June 15. Even before this new barrier, fewer Taiwanese spot cargoes had been moving to China, which had forced the producer to look for alternate outlets in Southeast Asia, India and the Middle East.

A couple of South Korean cargoes have been lined up for shipment from Onsan to Jingjiang and Zhangjiagang in the first half of July, but no further movements were reported.

Group II grades were generally longer in all of Asia due to high operating rates at base oil plants and softer demand due to plentiful existing stocks and the arrival of the rainy season and monsoons in several countries.

The perception of lengthening Group II supplies fed buyers’ expectations that prices would slip, encouraging them to wait as long as possible to secure additional cargoes. As a result, trading in this segment was lackluster, with bids and offers only edging down slightly from the previous week as suppliers tried to maintain prices given climbing crude oil and feedstock values.

This was the case in India, where Group II consumers have bolstered inventories ahead of the monsoon season and showed little buying appetite for additional volumes, but suppliers have not adjusted prices down given steeper crude oil and feedstock gasoil pricing. There were also a more limited number of spot export offers from South Korea.

Group I import values of the heavy-viscosity grade SN500, on the other hand, have seen moderate downward revisions of about $10 per metric ton CFR India week on week, driven by competitive domestic prices. However, there are expectations that supplies may grow tighter in the region because of thinning spot supplies from Southeast Asia. This might be offset by growing availability from the Middle East.

The Group III cuts received price support from a tightening of regional supplies, given an upcoming plant turnaround in Indonesia and increased demand from the U.S. as some shipments from the Middle East that were expected in July have suffered delays and may cause some shortages in the coming weeks. Group III CFR India price indications edged up by about $10-15/ton from the previous week.

An upcoming turnaround at the SK-Pertamina plant in Dumai, Indonesia, may further reduce regional supplies of Group III grades. The turnaround, which was originally scheduled for May, and was later postponed to July, has now been scheduled for August. The turnaround will reduce regional short-term Group III inventories, but the producer was expected to build inventories to cover term requirements. Later in the year, S-Oil has scheduled a turnaround at its Onsan plant in September/October which might affect Group II and Group III availability, but the producer was expected to build inventories ahead of the outage as well.

Discussions about base stock imports have subsided in India in recent weeks as demand has been generally lukewarm, but a number of cargoes were mentioned for possible shipment to India in July and August. A 2,400-ton cargo was expected to be shipped from Ruwais, Qatar, to Jawaharlal Nehru Port Trust around July 20. A 2,000-ton parcel was under discussion for prompt shipment from Rayong, Thailand, to West Coast India and/or the Gulf.

In terms of South Korean base oil shipments, a 3,800-ton lot was quoted for prompt shipment from Onsan to Singapore. A second 1,900-ton prompt lot was mentioned for shipment from Onsan to Haiphong, Vietnam, while an additional 1,450 tons were expected to cover the same route in August. A 1,700-ton parcel was under discussion for shipment from Onsan to Vietnam in the first half of July. A 6,650-ton cargo was expected to be shipped from Yeosu to Batangas, Philippines, in late July. There was mention of a 4,000-ton lubes cargo being worked on for shipment from Ulsan to Houston, U.S., in August.

Base oil spot prices in Asia were mixed, with indications for Group II moving down on lengthening supplies and declining buying interest, and Group III prices edging higher on tightening conditions. Most of the other grades remained unchanged from a week ago. 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 stable-to-soft. The Group I solvent neutral 150 grade was steady at $890-930/t, and the SN500 was also unchanged at $1,050-1,090/t. Bright stock was hovering at $1,280-1,320/t, all ex-tank Singapore.

Prices for the Group II 150 neutral slipped by $10/t at the low end of the range to $970-1,010/t, and the 500N was also down by $10/t at $1,070-1,110/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was steady at $760-800/t, and the SN500 was holding at $920-940/t. Bright stock prices were assessed at $1,070-1,110/t, FOB Asia.

The Group II 150N was lower by $10/t at $800-840/t FOB Asia, and the 500N was assessed unchanged at $910-950/t FOB Asia.

In the Group III segment, 4 cSt, 6 cSt and 8 cSt prices have recovered on tightening supplies, after being under pressure in the previous weeks. The 4 cSt grade moved up by $20/t to $1,110-1,150/t, and the 6 cSt was also higher by $20/t at $1,120-1,160/t. The 8 cSt cut was assessed up by $20/t as well at $1,000-1,040/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.