Base Oil Prices in Asia under pressure due to high Crude prices and Limited Supply

The ongoing Russia-Ukraine war, as well as possible new sanctions by the US, the EU, and other countries on Russian capital assets and crude oil, natural gas, and coal exports, are likely to have an influence on energy prices in the upcoming weeks. Sharp crude oil prices and tighter supplies continues to put downward pressure on Asian Base oil prices, while prices fell at the conclusion of the week when members of the International Energy Agency (IEA) agreed to release 120 million barrels of crude oil from strategic reserves. Despite the fact that the fight was not taking place on Asian land, its ramifications were expected to have an impact on the global supply of not only energy but also a variety of other commodities.

The recent spike in feedstock prices, as well as rising freight and insurance rates, have prompted more pricing modifications throughout the week, according to Base Oil industry players. Congestion at Chinese ports caused by city-wide coronavirus-related lockdowns in port cities such as Shanghai was expected to exacerbate logistical challenges and put downward pressure on freight rates as vessel capacity became scarce.

Prices were also pushed higher by a seasonal increase in Base Oil demand and tightening supply levels as a result of existing and impending turnarounds at API Group II and Group III facilities. According to sources, SK's Ulsan, South Korea facility would undergo a turnaround in April-May, affecting Group III production. In April, GS Caltex's Group II and Group III plant in Yeosu, South Korea, was scheduled to operate at lower rates for three weeks. Hyundai-Shell, a South Korean company, will shut down its Group II factory in Daesan in late April for a month of maintenance. Handi Sunshine, a Chinese refinery, was said to have scheduled maintenance at its Group II refinery in Hainan for two months beginning in late March. Another Chinese manufacturer was set to close its Group I factory this month. Due to shrinking profit margins, several refineries were forced to reduce their production rates.

While Chinese demand slowed in the first two months of 2022, it picked up in March as manufacturers began their spring production cycle. Because local manufacturers do not produce enough to meet domestic demand, and a turnaround at a large Group I plant was anticipated, the Group I cuts and heavy-viscosity grades were the most difficult to find. Concerns regarding lower demand for lubricants arose as a result of the recently imposed lockdowns in China to prevent the spread of the coronavirus, since the population's mobility and transportation usage were restricted, prompting buyers to exercise prudence in terms of acceptable pricing levels.

Chinese buyers looked for spot buying opportunities in Southeast Asia, but buyers in Singapore, Indonesia, Malaysia, Vietnam, India, and the Philippines were in a more advantageous position to secure the cargoes offered by Southeast Asian suppliers because of lower freight rates and fewer logistical issues. Due to less appealing pricing at origin and difficult supply conditions, Indian buyers appeared to be depending more heavily on domestic and regionally sourced cargoes. Shipments from the United States and the Middle East were expected to be less plentiful in the coming weeks.

As per ChemAnalyst, from the start of this week, Asian spot Base oil prices remained constant to firm, with strong demand and solid crude oil and feedstock prices supporting higher price thoughts.