In India, most base oil consumers had built inventories ahead of the start of the monsoons and were expected to have enough products to keep operating until the end of the rainy season in September. Many participants were also worried about crude oil and feedstock prices, which have shown volatility over the last couple of weeks. As a result, buying interest for additional cargoes was subdued, and this partly offset the reduced output stemming from a turnaround at a domestic base oil facility this month, which will likely reduce API Group I and Group II availability.

Massive landslides sparked by torrential rains swept away homes in hilly areas of southern India’s Kerala state last Tuesday, killing hundreds of people and leaving dozens more missing, CBS News reported this week. No confirmation could be obtained whether the rain had impacted any Indian refinery operations.

Indian buyers have been relying on domestic supplies more heavily than earlier in the year, when a barrage of imported base oils had competed with locally-produced base stocks. Imports have declined due to reduced availability at source countries such as the United States, where supplies have tightened and prices have gone up. There has been reduced buying interest for South Korean cargoes as well, but this may change ahead of the monsoon season ending in September and as freight rates appeared to be moderating. Steeper freight rates as a result of shipping disruptions in the Red Sea had turned some shipments less unworkable.

On a CFR India basis, API Group I and Group II prices have edged down between $5 per metric ton and $15/ton week on week, but bright stock and Group III values remained largely unchanged.

Details about a number of shipments recently completed from South Korea to India emerged. About 7,000 tons were heard to have been lifted in Ulsan for Chennai and Mumbai in early July. An 18,000-ton lot was reportedly shipped from Dakar, Senegal, to Mumbai and Mundra in late June/early July as well. About 23,000 tons were lifted in Daesan and Ulsan for Mumbai the first week of July. A 7,000-ton lot was lifted in Ulsan for Chennai in mid July. Slightly over 10,000 tons were shipped from Singapore to Mumbai July 4-11 on the Hakuba Galaxy.

Meanwhile, in China – another key market in Asia – base oil demand for imports remained lackluster due to the closing of the arbitrage window for most grades as growing domestic supply has been able to meet many requirements and local producers have lowered prices to capture market share. This was mostly evident in the Group III segment, where a local producer was heard to be producing on-spec base oils and was hoping to compete against imports.

A few Group I and Group II plants in China were being run at reduced rates due to market economics, while an unexpected shutdown at a Chinese Group II plant which started in June was not anticipated to have a significant impact on general supply levels. Data showing a lower-than-anticipated GDP growth of 4.7% in the second quarter in China, compared to the government’s expected 5%, has also dampened sentiment as the real estate market, which is a large consumer of petrochemicals–continues to suffer and many other segments have been impacted as well.

China still depends to a large extent on Group I imports from Southeast Asia, as the country has a chronic deficit of heavy-viscosity grades, particularly Group I bright stock. However, availability of spot cargoes has been thin in Southeast Asia, particularly after imports from Japan have dropped and local producers have had to stream more of their products into the domestic market. Japan’s base oil output has steadily slipped over the last few years, and dropped considerably after the permanent closure of two ENEOS Group I base oil plants in 2022 and 2023, leaving little surplus for exports. A third refinery’s base oil output in Japan has been significantly reduced due to a refinery fire in early July, and no updates about its production status were available.

An important source of Group II base oils for China had been Taiwan, but this situation has changed. The sole Taiwanese Group II producer, Formosa Petrochemical, had until earlier this year been exporting a large part of its production to China. However, the reimposition of a tariff on refined products from Taiwan, including base oils, since June of this year has thwarted business, leading the Taiwanese supplier to ship only about half of its regular volumes to China. Furthermore, lackluster demand for refined products and base oils has encouraged the producer to reduce refinery operating rates this month, even though facilities had not been significantly impacted by Typhoon Gaemi.

There have been Taiwanese export cargoes offered to Southeast Asia and India, and to more distant destinations as well, including South America. Recent movements out of Taiwan included a 2,000-ton cargo that was discussed for shipment to Pakistan and the United Arab Emirates between mid July and early August, and a 4,000-ton lot expected to be lifted in Mailiao to Chittagong, Bangladesh, in mid Aug.

In terms of imports, activity in China was subdued due to limited arbitrage opportunities. There were reports of 3,000 metric tons of base oils having been shipped from Singapore to Nantong, China, between July 17 and 20. There was also talk about a South Korean supplier having offered Group III August volumes at lower levels than in July to compete with offers from a local producer.

Supplies of Group II grades have been on the rise in Asia due to slowing demand from some markets and high run rates for base oils at refineries given attractive base oil margins compared to feedstocks and fuels. This has been particularly evident in South Korea, where production rates have been quite high. Suppliers were still hoping to see a demand uptick in China ahead of the Golden Week holidays in late September, and in India, following the end of the monsoon season.

Group III grades have become tighter in previous weeks due to a lack of readily available cargoes and demand staying fairly healthy. There had been an incentive for suppliers to move cargoes to other regions such as the United States, which had tightened availability in Asia, but this export business may be slowing down.

The tightness in the Group III segment was likely to be exacerbated by a turnaround at the SK-Pertamina plant in Dumai, Indonesia, which was expected to start this month. The turnaround was originally scheduled for May but was postponed. The maintenance program will likely reduce regional short-term Group III inventories, but the producer was expected to build inventories to cover term obligations.

S-Oil also scheduled a one-month turnaround at its Onsan plant starting in September, which might affect availability of all base oil groups, but the producer was expected to build inventories ahead of the outage as well.

Refiners were monitoring developments on the crude oil and feedstock side, as prices have fluctuated and remained exposed to pressure as concerns about China’s economy persisted, and weak economic data in the U.S. sparked a sell-off in equity markets as fears grow that a recession may be looming, CNBC reported. West Texas Intermediate has erased most of its gains for the year and Brent was down in early morning trading on Monday as well.

On Aug. 5, Brent October 2024 crude futures were trading at $76.40 per barrel on the London-based ICE Futures Europe exchange.

Dubai front month crude oil (Platts) financial futures for September 2024 settled at $75.71/bbl on the CME on Aug. 2, compared to $77.90/bbl for August futures on July 29.

Base oil spot prices in Asia were mixed, with some prices seeing downward adjustments on lengthening supplies and subdued buying interest, and others firming on tightening 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-soft. The Group I solvent neutral 150 grade was steady at $890-930/t, and the SN500 was holding at $1,040-1,080/t. Bright stock edged down by $20/t to $1,260-1,300/t, all ex-tank Singapore, on discussions at lower price levels.

Prices for the Group II 150 neutral were assessed at $950-990/t, and the 500N was holding at $1,060-1,100/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 slipped by $10/t to $740-780/t, but the SN500 was steady at $920-940/t. Bright stock prices were assessed unchanged at $1,060-1,100, FOB Asia.

The Group II 150N was assessed lower by $10/t at $780-820/t FOB Asia, and the 500N was steady at $910-950/t FOB Asia.

In the Group III segment, 4 cSt, 6 cSt and 8 cSt prices were assessed up from the previous week on firm indications. The 4 cSt grade was up by $20/t at $1,140-1,180/t, and the 6 cSt was also adjusted up by $20/t to $1,150-1,190/t. Likewise, the 8 cSt cut moved up by $20/t to $1,030-1,070/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.