Base oil shipments in and out of the Middle East could also be affected by a spreading conflict as shipments were likely to be hit by higher freight rates, given a war risk premium collected by insurance companies, amid the possibility that key transportation channels like the Strait of Hormuz could be blocked by Iran in retaliation for its oil infrastructure being hit.

While some buyers preferred to wait for further developments before venturing out into the trading scene, the API Group I cuts continued to enjoy solid attention and prices remained fairly steady. There were some lower bids emerging this week on the Group I cuts as additional Thai availability was expected to come into the market for November shipment, while more Indonesian product was also heard trading in recent weeks.

Group II cuts held their ground over the last few days because suppliers have been reluctant to adjust prices down on account of climbing crude oil prices, even though buying interest for these grades left something to be desired. Some offers for South Korean material have actually moved up, but elicited muted response, although there was some buying interest for small volumes from Southeast Asia. There were also expectations that Group II cargoes may become available from sources such as the United States at competitive prices during the fourth quarter, particularly to destinations such as India as has been the case in the last few years as suppliers seek to find a home for emergency barrels held during the hurricane season.

There was also downward pressure on the Group III 4 cSt and 6 cSt grades given abundant supplies and lackluster demand. The 8 cSt was fairing slightly better because of less plentiful availability. Group III base oils were expected to remain under pressure unless the conflict in the Middle East leads to output and transportation disruptions, as demand in other regions such as Europe and the U.S. has started to soften and additional volumes were likely to become available.

Participants also kept an eye on planned and unplanned outages currently taking place. South Korean producer S-Oil was performing a turnaround at its Group I and Group II trains in Onsan 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 and spot supply of Group I and II may be more limited, but Group III cuts were not expected to be affected.

A couple of Group I base oil units in Japan remained off-line, with an unplanned extended shutdown at Idemitsu Kosan’s Chiba plant following a fire last July possibly lasting until year-end, and a two-month turnaround at a Cosmo Oil unit that started in late September likely leading to a tightening of Group I supplies. There was no update available from the producers as to the status of the plants.

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

PetroChina’s Dalian Petrochemical Group I plant was scheduled 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/III base oils unit in Cartagena, Spain, which started at the beginning of October 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.

Despite these plant shutdowns, availability of most grades was deemed adequate-to-long because of disappointing demand as lubricant consumption has been sluggish in many countries of the region due to economic and geopolitical uncertainties and changing market dynamics. These include the inroads made by electric cars and the stricter emission policies established by a number of governments, which, among other things, have taken older vehicle models out of the market. Newer vehicles have longer oil drain intervals and require the use of more synthetic base oils in lubricant formulations.

Market activity has seen a small revival in China following the National Day holidays in early October, with some buyers returning to the market to replenish stocks. Given uncertainties regarding imports as prices appeared to remain at the mercy of fluctuating freight rates and other conditions, many consumers preferred to secure domestic products, which were plentiful and were also offered at competitive prices, particularly for Group I bright stock.

Demand for Group II base oils improved after the holidays and it was deemed balanced against local supply, which encouraged domestic sellers to maintain or even hike prices slightly.

The exception perhaps in terms of competition with domestic production was Group III grades, as plentiful supplies from the Middle East were expected to reach China over the next few weeks. Some offers for imported Group III base oils have been adjusted down significantly to compete with local production.

Even though the Chinese government recently announced a stimulus package to boost the economy –which has not been as strong as anticipated following the stringent measures imposed on the population during the coronavirus pandemic – there were still many uncertainties plaguing segments such as the real estate and construction sectors, which are big consumers of petrochemicals. Lubricant demand from the automotive segment has also seen significant shifts given the government’s incentives for consumers to switch to electric vehicles as a means to reduce emissions and the use of fossil fuels. Heavy grades used in industrial applications continued to see healthy uptake, while there has also been an uptick from the agricultural segment during the harvest of autumn crops.

Taiwan celebrated National Day holidays between October 5-10, with trading activity remaining subdued. The sole Taiwanese Group II unit operated by Formosa Petrochemical in Mailiao was heard to be running well, despite a recent typhoon that hit Taiwan. Formosa has also been able to find additional outlets in Asia and the Middle East for its production given reduced base oil volumes being shipped to China on account of a reimposed tariff on refined products. A 6,300-ton lot was discussed for shipment from Mailiao to Hamriyah, United Arab Emirates, between October 20-30. About 3,000 tons were also mentioned for shipment from Mailiao to Chittagong, Bangladesh, in late October. A 10,000-ton to 12,000-ton cargo was quoted for shipment from Mailiao to West Coast India in the second half of October. A second lot of about 7,000 tons to 8,000 tons was also likely to be shipped from Mailiao to Mumbai in early November.

In India, buyers have started to consider fresh purchases because a period of increased lubricant demand was looming, but maintained a cautious stance given the recent rise in crude oil and feedstock prices. Some consumers were concerned that if they committed to cargoes now when import prices were stable to slightly higher, there was a possibility that prices would slip later if crude oil values faltered.

For the time being though, base oil import prices were maintained as margins were being squeezed due to the steeper crude oil and feedstock values, although there was some downward pressure on Group III grades given ample supplies.

One exception again seemed to be bright stock, with spot offers on a CFR India basis edging up by $10 per metric ton as availability remained limited. Southeast Asian cargoes appeared to be snapped up by buyers who were closer to the source, paid less freight and bid at higher levels.

A key element that sellers of imported cargoes were facing was competition with local supplies. Domestic refiners enjoy the advantage of being able to refine lower-priced Russian crude oil, resulting in more substantial base oil margins and this allowed them to offer more competitive pricing against imports. Most Indian plants were also expected to be running at top rates following the monsoon season.

There were also expectations that additional cargoes—particularly of Group II cuts—would become available at competitive levels during the fourth quarter as Asian and U.S. producers make every effort to lower inventories ahead of the end of the year.

Several cargoes were being discussed for shipment to India this month, with a rare 3,700-4,000-ton lot mentioned for lifting in Shanghai to Mumbai in mid-October. A 9,000-ton cargo was likely to be shipped from Daesan, South Korea, to WCI on October 10-15. Another 11,000 tons to 13,000 tons were also discussed for shipment from Daesan to WCI in late October. A second South Korean parcel of about 5,000 tons was also on the table for shipment to WCI at the end of October.

Crude

Crude oil futures have strengthened compared to a month ago, and the higher values were exerting pressure on base oil prices, even though downstream adjustments do not take place overnight. Crude oil prices looked set to display another weekly gain last Friday, supported by the conflict in the Middle East and concerns about potential supply disruptions, although prices retreated towards the end of the trading session.

Reuters reported that Saudi Arabia, the United Arab Emirates and Qatar were lobbying Washington to stop Israel from attacking Iran’s oil sites because they were concerned their own oil facilities could come under fire from Tehran’s proxies if the conflict escalated. The three countries were also refusing to let Israel fly over their airspace for any attack on Iran.

Oil futures fell by a dollar in early Asian trading on Monday after disappointing Chinese inflation data was released over the weekend, fanning fears about oil demand in the world’s top crude importing country. Hurricane Milton, which made landfall in Florida last week had helped push oil prices higher, but investors were evaluating how the storm’s damage might impact the U.S. economy and fuel demand, according to OilPrice.com.

On October 14, Brent December 2024 futures were trading at $78.13 per barrel on the London-based ICE Futures Europe exchange, from $77.72/bbl on October 7.

Dubai front month crude oil (Platts) financial futures for November 2024 settled at $77.55/bbl on the CME on October 11, from $76.34/bbl on October 4.

Prices

Spot base oil prices were steady-to-soft, 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 stable to softer. Group I solvent neutral 150 grade was unchanged at $850-890/t, but the SN500 slipped by $10/t to $1,050-1,090/t. Bright stock prices were firm at $1,280-1,320/t, all ex-tank Singapore, on tight 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 $660-700/t and SN500 also edged down by $10/t at the low end of the current range to $900-940/t. Bright stock prices were adjusted down by $10/t at the low end of the range to $1,080-1,130/t, FOB Asia range on lower bids.

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 slipped on plentiful supplies and subdued buying interest. The 4 cSt grade was lower by $10/t at $1,070-1,110/t, and the 6 cSt was also assessed down by $10/t at $1,080-1,120/t. The 8 cSt cut was holding at $970-1,010/t.

Gabriela Wheeler can be reached directly a tgabriela@LubesnGreases.com.

Lubes’n’Greases shall not be liable for commercial decisions based on the contents of this report.