Despite expectations that the ongoing transportation disruptions in the Red Sea and delays in the Panama Canal would place upward pressure on base oil prices due to tighter vessel space and steeper freight and insurance rates, the market has not seen too much of an impact yet. Prices generally remained under pressure given ample supplies against timid demand, with the exception of a couple of grades that have been snug or are difficult to replace.
The difficulties in moving product from Asia and the Middle East to destinations in Europe have been offset by rather lackluster demand in that region. In the United States and Latin America, some Asian shipments had faced delays when ships tried to cross the Panama Canal to the U.S. Gulf or East Coast South America, but the backlog of vessels seems to be clearing, according to sources. Some suppliers have also been able to sell product to the West Coast of South America, relieving some inventory pressure. Vessel space remained tight on certain routes, however.
The Yemen-based, Iran-backed Houthi attacks on commercial vessels in the Red Sea may have had a limited impact on base oils so far, but they certainly have affected crude oil prices over the last several weeks as oil tanker movements have been restricted. The Houthi attacks continued despite U.S. and U.K. airstrikes against dozens of Houthi targets over the last week. “The Houthis say they are attacking vessels that are Israeli-owned or operated or are heading to Israeli ports. However, many of the ships targeted have no connections with Israel,” BBC News reported online.
On Thursday, crude futures took a break from recent fluctuations and were mostly flat as below-freezing temperatures disrupting some crude production in the U.S. offset underwhelming Chinese economic data.
On Jan. 18, Brent March 2024 crude futures were trading at $78.22 per barrel on the London-based ICE Futures Europe exchange, from $78.23/bbl on Jan. 11.
Dubai front month crude oil (Platts) financial futures for February 2024 settled at $76.57 per barrel on the CME on Jan. 17, from $76.24/bbl on Jan. 10.
Base oil buyers in all regions have shown hesitation in acquiring larger volumes because of uncertainties in downstream lubricant markets and crude oil price volatility. If crude values edged down, they would place additional pressure on base oil prices when values were already tenuous. At the same time, lower fuel prices would encourage refiners to continue running base oil plants at full rates because of better margins, exacerbating the supply overhang. If inventories rise, there would be a good chance that suppliers would adjust prices down to entice buyers. However, it appeared that sellers have also taken a wait-and-see position in order to assess supply and demand conditions as a number of plants were ready to be shut down for maintenance, and this might pressure prices up.
Several South Korean cargoes were being worked on for shipment within the region. A 1,000-metric ton cargo was discussed for shipment from Ulsan to Bangkok, Thailand, in mid-February. A 1,200-ton lot was being considered for lifting in Ulsan for Koh Sichang, Thailand, in mid-February. as well. A 1,000-ton parcel was also quoted for shipment from Ulsan to Port Klang, Malaysia, in February.
In China, news that the country’s fourth-quarter 2023 gross domestic product growth rate at 5.2 percent had fallen below expectations, and that the birth rate has dipped for a second year in a row has had a sobering impact on business sentiment, dampening lackluster consumer demand further.
Base oil buyers have also shown limited interest in imports in recent weeks as domestic producers have adjusted down prices and there seemed to be enough supply to cover a majority of requirements, particularly in the API Group II segment.
A partial shutdown of Group II trains at a South Korean base oil plant in February to correct some technical issues was expected to limit the producer’s ability to export product. Nevertheless, Group II supplies have been more available in the region since the restart of Formosa Petrochemical’s Group II plant in Mailiao, Taiwan, following a two-month planned turnaround that was completed in December. The supplier routinely ships significant amounts to China, and it was heard to have concluded several February deals as Chinese requirements had picked up. Lubricant demand has been weaker than expected in China, but there were signs that consumption had started to improve ahead of the Lunar New Year holidays starting on Feb. 10.
The Group I segment appeared to show a deficit of heavy-viscosity grades. Bright stock in particular was a sought-after grade as it is used in industrial, heavy-duty, marine and rail applications, although demand for this cut tends to weaken in China during the cold winter months. Importers were trying to protect their inventories from the price erosion affecting other segments as they expected Group I supplies to tighten in the region on the back of a Thai plant turnaround this month, which was likely to last until March. Discussions surrounding import cargoes surfaced during the week, with a 2,000-ton cargo mentioned for shipment from Paulsboro, U.S., to Ningbo, China, between mid-January and early February. A 3,000-ton lot was also expected to be shipped from Singapore to Tianjin in early February.
A domestic producer who has recently started up Group III production in China was heard to be offering attractive pricing to widen its market share. The country seemed to be on its way to be less dependent on imports for most grades.
Group III supply was plentiful in Asia but may tighten, given a number of ongoing and upcoming plant turnarounds. Petronas planned to start a two-month turnaround at its Group III plant in Malacca, Malaysia, at the end of January, and SK Enmove has also scheduled a one-month turnaround at its Group III plant in Ulsan, South Korea, in March. However, both producers were expected to build inventories ahead of the shutdowns to cover some contract commitments during the outages and would limit their spot sales.
In the Middle East, it was heard that ADNOC had temporarily halted Group III production in Abu Dhabi to make some equipment adjustments and to avoid a build-up of inventories during a period of slow demand but was anticipated to restart production in February.
Contrary to disappointing economic growth data in China, India was expected to show steady growth this year. According to an article in The Hindu, India’s GDP growth in 2023-24 was estimated at 7.3%, compared to 7.2% a year ago, as per the first advance estimates of national income released by the National Statistical Office last week. This was promising news for industrial, infrastructure and construction activities–segments that consume large amounts of lubricants. However, base oil demand remained somewhat lackluster, as many buyers have built inventories and did not feel pressure to acquire additional cargoes.
Despite concerns about disruptions of Middle East supplies due to the Red Sea incidents, most base oil grades underwent few price fluctuations as imports from other origins, along with domestic contract volumes, were deemed sufficient to cover most requirements. Sellers appeared unwilling to lower prices in case of base oil shortages down the road. Some production hiccups at domestic facilities also offered support to pricing.
A few cargoes were being discussed for shipment to India, including 10,000 tons for lifting in Pyongtaek, South Korea, to West Coast India at the end of January to early February. About 16,000 tons were also mentioned for shipment from Yanbu and Jeddah, Saudi Arabia, to Mumbai in the second half of January. A 10,500-ton lot made up of three grades was expected to be shipped from Singapore to Mumbai in late January. A 3,000-ton cargo was also mentioned for shipment from Malacca, Malaysia, to Pipavav or Hazira at the end of January.
Base oil prices in Asia were mixed compared to the previous week as lengthening supplies of certain grades were placing pressure on some spot indications, other prices remained steady, and some even gained slightly. 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 steady to higher from the previous week. The Group I solvent neutral 150 grade was heard at $870/t-$910/t, and the SN500 was assessed at $990/t-$1,020/t. Bright stock was up by $10/t at $1,190/t-$1,230/t, all ex-tank Singapore.
Prices for the Group II 150 neutral were steady at $950/t-$980/t, but the 500N fell by $10/t to $970/t-$1,010/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was heard at $770/t-$810/t, and the SN500 at $880/t-$910/t. Bright stock prices edged up by $20/t to $1,030/t-$1,070/t, FOB Asia on tightening supply.
The Group II 150N slipped by $20/t to $760/t-$800/t FOB Asia, and the 500N was assessed lower by $10/t at $780/t-$810/t FOB Asia.
In the Group III segment, 4 centiStoke and 6 cSt prices were softer from the previous week. The 4 cSt was lower by $10/t at $1,160-$1,190/t, and the 6 cSt was also down by $10/t at $1,140/t-$1,180/t. The 8 cSt grade was unchanged at $930/t-$970/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.