Since the beginning of the year, the supply and demand ratio in the API Group I segment has remained fairly snug given the reduced number of facilities still producing Group I base oils – with most of them located in Southeast Asia – and the ongoing need for certain cuts such as bright stock, which is difficult to replace. Furthermore, domestic consumption of these grades remained robust in these countries, which limited the spot volumes that suppliers could offer up for export. Some countries were also importing products from the Middle East, South Korea and Singapore to boost the availability of those grades that remained in high demand.

Bright stock continued to be one of the most sought-after grades because of ongoing requirements from the industrial, marine, railway and heavy-duty automotive segments it serves. Spot prices have therefore been on an upward trend since the first quarter and remained buoyed by a tight supply and demand balance. Last week, Southeast Asian suppliers offered several Group I grades through tenders for late May and June shipment, but the quantities were relatively small. In China, bright stock demand was healthy and import prices were fairly steady but could face downward pressure as more competitive offers for domestic product emerged.

An increase in demand for Group II grades has also drawn on existing inventories as some plants completed turnarounds or partial shutdowns in recent months, and spot supplies remained limited. The light grades were particularly tight as they are increasingly used in automotive lubricants. Suppliers have hiked their offers and buyers have gradually come to accept the steeper prices as there were few purchase options.

The Group II price climb was quite evident in China, where cargoes were more difficult to locate due to ongoing maintenance at a local refinery, a prolonged shutdown at a second plant that appeared to remain off-line since March but was expected to restart later this month or in early June, and recent drops in import volumes from Taiwan and other Asian origins. Import volumes had generally remained low in China in recent weeks given competitive domestic prices and difficulties in making arbitrage numbers work.

The sole Taiwanese Group II producer, Formosa Petrochemical, had curtailed Group II base oil shipments to China during March and April because the producer was focusing on meeting domestic demand, while a shutdown at its Group II plant in Mailiao caused by upstream maintenance at the affiliated refinery also restricted spot shipments. The producer was expected to ramp up base oil production once the maintenance work was completed this week. The producer was also anticipated to ship a 7,000-metric ton cargo to Hamriyah, United Arab Emirates, in the second half of June.

A number of South Korean cargoes were quoted for possible shipment to China, with an 1,800-ton parcel mentioned for shipment from Onsan to Huizhou at the end of May and a second 1,800-ton lot being considered for lifting in Onsan to Tianjin in early June.

Additionally, an 11,000-ton parcel was discussed for shipment from Daesan to Singapore between June 20 and June 30. A 2,000-ton cargo was on the table for shipment from Sri Racha, Thailand, to Nantong, China, Jakarta, Indonesia, or Mumbai, India, in the first half of June.

In India, buyers have started to resist some of the higher offers bandied about by regional suppliers because of a decline in crude oil prices and expectations that this trend could exert pressure on base oil values, especially as base oil demand tends to weaken with the start of the monsoon season in June. This trend was more evident in Group II bids as buyers expected to receive an array of offers in the coming months versus slowing domestic demand.

Group I prices for imports to India remained steady, but there were very few imports on offer given a regional tightening of Group I supplies and many buyers preferred to rely on domestic products. Increased domestic output after a local producer ramps up production rates this month boosted buyers’ confidence that availability would be adequate in the coming weeks.

In terms of imports to India, there has been muted discussion for U.S. cargoes moving to India due to climbing offer levels, but South Korean shipments have continued to be considered. About 40,000 tons to 50,000 tons were mentioned for possible shipment from Yeosu to Mumbai and Kandla in early June. Additionally, a 5,000-ton lot was expected to be shipped from Rayong, Thailand, to West Coast India at the end of May.

Group III supplies were generally expected to lengthen in Asia given a gradual increase in production, following regional plant turnarounds, together with additional offers of Middle East material. In China, a local producer was also vying to gain market share by offering competitive pricing and seemed to be gaining traction in terms of contract arrangements with local buyers. In India, Group III spot prices have come under pressure due to plentiful supplies and competitive price movements by suppliers eager to maintain or conquest market share.

Group III availability has started to improve given the restart of the SK Enmove plant in South Korea, following a turnaround that started in mid-March and was completed this month. At the same time, the SK-Pertamina plant in Dumai, Indonesia, was expected to undergo maintenance this month, reducing regional short-term Group III inventories. Later in the year, S-Oil has scheduled a turnaround at its Onsan plant in September and October, but will build inventories ahead of the outage.

Refiners were expected to continue running base oil plants at close to full rates as base stock margins were still more advantageous than competing fuel prices. This situation may result in increased availability of certain grades beginning in June, when demand tends to slow down in some countries such as India during the monsoon season, or in China, following an uptick in the spring.

The recent crude oil price fluctuations were also a source of anxiety for many market players since lower values could start to exert downward pressure on base oil prices. Crude futures have come down from the low $90s per barrel in April to the $80s/bbl on an expected ceasefire agreement in the Hamas-Israel conflict and economic uncertainties that signaled that global oil demand may not be as strong as expected.

However, crude futures jumped by nearly 1% on Wednesday from a two-month low, and extended gains on Thursday on data showing lower inflation rates than expected in the United States, supporting the argument that the U.S. Federal Reserve might cut interest rates in September and this could promote oil consumption.

On Thursday, May 16, Brent July 2024 crude futures were trading at $82.72 per barrel on the London-based ICE Futures Europe exchange, from $84.04/bbl on May 9.

Dubai front month crude oil (Platts) financial futures for June 2024 settled at $82.48 per barrel on the CME on May 15, from $83.19/bbl on May 8.

Base oil spot prices in Asia were steady-to-firm, with indications for some grades inching 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-to-firm. The Group I solvent neutral 150 grade was unchanged at $900/t-$940/t, but the SN500 edged up by $10/t to $1,040/t-$1,080/t. Bright stock was holding within a $1,290/t-$1,320/t range, all ex-tank Singapore.

Prices for the Group II 150 neutral were assessed steady at $990/t-$1,020/t, but the 500N moved up by $10/t to $1,100/t-$1,140/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was assessed higher by $10/t at $780/t-$820/t, but the SN500 was unchanged at $910/t-$930/t. Bright stock prices firmed by $20/t to $1,120/t-$1,160/t, FOB Asia on tight supply.

The Group II 150N was stable at $860/t-$900/t FOB Asia, and the 500N range was also holding at $960/t-$1,000/t FOB Asia.

In the Group III segment, 4 centiStoke and 6 cSt prices were assessed up to reflect current discussion levels. The 4 cSt grade moved up by $10-20/t at $1,100-$1,140/t, and the 6 cSt was also up by $20/t at $1,100/t-$1,140/t. The 8 cSt cut was holding 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.