With Israel’s recent attacks on Iran-backed Hezbollah in Lebanon, and Iran retaliating with a barrage of ballistic missiles, the confrontation could potentially have an impact on crude oil output in the Middle East if Israel struck energy targets in Iran, as the country is one of the major oil producers in the region. The conflict could also have significant impact on trading and shipping activity, including the movement of base oils and lubricants in and out of the region amid increased freight rates on account of the risk premium that insurance companies would add on to shipments.

Iran has previously threatened to disrupt flows through the Strait of Hormuz – a crucial channel through which about one-fifth of the world’s daily oil production passes, connecting oil producers in the Middle East with global markets – if its oil sector comes under attack, CNBC reported.

While base oil supply in Asia has lengthened over the last few weeks on account of lackluster demand and high operating rates at most facilities, if base oils are not able to be shipped out of origins in Qatar, the United Arab Emirates, Saudi Arabia and Bahrain, there could be a sudden tightening of availability, particularly that of API Group III base oils, not only in Asia, but at other destinations in the U.S. and Europe. This could coincide with a time of increased demand in countries such as India, where consumers had been laying low during the monsoon season but were expected to return to the market to replenish stocks over the next few weeks. Buyers remained cautious on account of the uncertainties, while sellers were reluctant to part with material at lower prices given the possibility of increasing costs at a later date.

Although most base oil facilities in Asia were running well, there were some planned and unplanned outages taking place. South Korean producer S-Oil’s Group I, II and III plant in Onsan was performing a turnaround at its Group I and II trains that started in mid-September and was anticipated to be completed at the end of October. The producer was expected to be able to meet contractual obligations during the outage, but spot supply may be more limited.

A couple of Group I base oil units in Japan were also offline. An unplanned, extended shutdown at Idemitsu Kosan’s Chiba plant following a fire last July will possibly last until the end of the year. A two-month turnaround at a Cosmo Oil unit that started in late September will likely lead to a tightening of Group I supplies.

Pertamina in Indonesia was also expected to start a one-month turnaround at its Cilacap Group I unit this month.

PetroChina’s Dalian Petrochemical Group I plant was expected to be shuttered before the end of the year, leading to a small tightening of supplies in China.

A maintenance program at SK-Repsol’s Group II and III unit in Cartagena, Spain, started a week ago and will last until early November was not anticipated to have a significant effect on availability in Asia, even though some Asian countries sometimes import Spanish base oils when market conditions are favorable.

With the exception of the Group I cuts, which were tight given the smaller number of plants still producing them against steady regional demand, most base oil grades were exposed to downward pressure because of plentiful availability and sluggish consumption, particularly the lighter grades. Nevertheless, suppliers remained hopeful that requirements would improve once activity picked up in key markets such as India.

Indian buyers have stayed away from trading because of subdued lubricant demand and ample inventories during the monsoon season, which technically ends in late September. Even though they were expected to come back to replenish stocks, many of them were cautious as they anticipated lower prices in the fourth quarter, when suppliers try to lower inventories ahead of year-end.

Ample domestic production and lower prices offered by local producers resulted in less immediate interest for imported material. The light-viscosity grades were said to be plentiful and were therefore more exposed to downward pressure, but price reductions were limited given the upward movement of crude oil and feedstock prices over the last several days.

Additionally, there are typically more U.S. cargo offers surfacing as producers try to release inventories that were built up ahead and during the hurricane season on the U.S. Gulf. Even though there were expectations that no major storms would affect that region in late September as the most active part of the season would have been over, a relatively late Hurricane Helene caused devastating damage in several Southeastern U.S. states. The storm did not disrupt base oil production, however, as it veered away from the areas where most base oil plants are located.

One of the developments that participants had been keeping an eye on in the U.S. was the longshoremen strike that halted activity in several U.S. ports in the East and Gulf last week, which could have affected import and export operations if the strike had been prolonged. However, the strike has been suspended for the time being and ports were expected to resume normal operations during the week.

Group III base oils were also abundant and may succumb to downward pressure in India if the conflict in the Middle East does not result in output and transportation disruptions, as demand in other regions such as Europe and the U.S. has started to soften and more cargoes are likely to become available.

In terms of shipments to India, there were reports of about 7,000 metric tons being discussed for shipment from the Middle East to West Coast India (WCI) in the second half of October. Close to 4,000 tons were also expected to be shipped from Shanghai, China, to Mumbai on October 10-20. A 5,000-ton parcel was also mentioned for possible shipment from Rayong, Thailand, to Kolkata this month. A 10,000-ton lot was being considered for lifting in South Korea to the Mediterranean or WCI around October 20. A 10,000-ton parcel was quoted for shipment from Daesan, South Korea, to Mumbai between October 3-17. Another 11,000-13,000 tons were noted for shipment from Daesan to WCI in late October.

Meanwhile, in China, general activities and the stock exchange were expected to reopen after a weeklong National Day or Golden Week holiday. The Chinese government introduced a series of measures to boost the sluggish economy, which were expected to be more effective than those presented after the COVID pandemic, but it remained to be seen whether the country can maintain the momentum. Industry participants were not optimistic about growth prospects because a large percentage of automotive lubricant demand has been curtailed by incentives to produce and sell electric and hybrid vehicles.

Base oil trading was expected to revive in China after the holidays, and indeed, a Chinese supplier was heard to have offered a Group II base oils tender last week. The producer had previously finalized export business involving Group I cuts.

Chinese buyers appeared to favor base oils produced at domestic facilities because of reduced price volatility, plentiful availability and incentives offered by local producers in the shape of lower pricing. Demand for heavy base oil grades from the agricultural segment was expected to emerge in coming weeks before the freezing winter temperatures arrive, as well as from the construction and heavy-duty vehicle segments.

Taiwan will also be observing National Day holidays, with celebrations starting on October 5 and the official holiday falling on October 10 this year. No production disruptions were reported at the sole Taiwanese Group II unit of Formosa Petrochemical in Mailiao, following the arrival of Typhoon Krathon (alsoknown in the Philippines as Super Typhoon Julian), which impacted Taiwan and the Philippines on October 1-4, causing many casualties and widespread damage.

While Taiwanese base oil volumes moving to China may have been reduced in recent months, shipments to other destinations in Asia and the Middle East have strengthened. This month, it was heard that a 6,300-ton cargo was on the table for shipment from Mailiao to Hamriyah, United Arab Emirates, around October 20-30. A 10,000-ton to 12,000-ton lot was mentioned for shipment from Mailiao to WCI in the second half of October. A 7,400-ton cargo was expected to be shipped from Mailiao to Merak, Indonesia, at the end of September or early October. A 7,000-ton to 8,000-ton parcel was discussed for lifting in Mailiao to Mumbai, India, in early November.

Prices

Crude oil futures continued to display sharp swings, driven by escalating tensions in the Middle East and prospects of increased demand in China after the announcement of an economic stimulus package that may spur increased crude oil consumption in the world’s top oil importing country.

On Monday morning, crude oil futures traded lower after strong gains the previous week as U.S. President Joe Biden discouraged Israel from attacking Iran’s oil facilities, easing concerns over possible supply disruptions. Iran, a member of OPEC, is a key player in the global oil market. Libya, which is also a member of OPEC, restarted crude production last week, strengthening confidence about supply security. 

On October 7, Brent December 2024 futures were trading at $77.72 per barrel on the London-based ICE Futures Europe exchange, from $72.49/bbl on September 30.

Dubai front month crude oil (Platts) financial futures for November 2024 settled at $76.34/bbl on the CME on October 4, from $71.16/bbl for October futures on September 27.

Spot base oil prices were again mixed in Asia this week, with some values slipping because of lengthening supply and slowing demand, and others remaining steady on more limited availability. 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-soft. The Group I solvent neutral 150 grade was lower by $10 per metric ton at $850-890/t, but the SN500 was unchanged at $1,060-1,100/t. Bright stock prices were firm at $1,280-1,320/t, all ex-tank Singapore, on limited availability.

Prices for Group II 150 neutral were holding at $890-930/t and 500N was steady at $1,050-1,090/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 slipped by $10/t to $670-710/t, but the SN500 was holding at $910-940/t. Bright stock prices remained within a $1,090-1,130/t, FOB Asia range on limited supplies.

Group II 150N was assessed at $720-760/t FOB Asia, and the 500N was holding at $920-960/t FOB Asia.

In the Group III segment, 4 cSt, 6 cSt and 8 cSt prices were softer on plentiful supplies and subdued buying interest. The 4 cSt grade was lower by $10/t at $1,080-1,120/t and the 6 cSt was also assessed down by $10/t at $1,090-1,130/t. The 8 cSt cut slipped by $10 as well to $970-1,010/t.

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.