Monthly global base oils outlook

Asia

The Asia base oil market experienced varied price movements in January due to Lunar New Year preparations, plant turnarounds, and shifting supply flows. Trading activity was subdued at the month's start, as participants avoided spot purchases ahead of the holidays.

Mid-January saw an unexpected outage at Eneos' Mizushima B plant, tightening Group I spot supply in Japan's domestic market and limiting export availability. The plant, that produces 230,000 mt/year of Group I base oils, is scheduled for turnaround from February to May. Domestic demand for Group I rose as buyers adjusted to the disruption, stabilizing prices before the Lunar New Year.

As the holiday approached, prices steadied across Asia amid ample supply and muted demand, with most buyers well-stocked. By month-end, Group II prices increased due to tighter supply and reduced inflows from the West. GS Caltex, a major Group II producer, is preparing for a turnaround at the end of February, limiting spot availability.

Group I faced downward pressure from ample supply and lackluster demand, although Bright Stock remained supported by stable demand. FOB Asia Group I prices fell, with SN150 decreasing from $685/mt to $670/mt by Jan. 28. SN500 also declined, settling at $920/mt.

In contrast, Group III prices trended upward, reflecting stable demand and tightening supply. FOB South Korea prices for 4CST, 6CST, and 8CST rose by month-end, highlighting the ongoing tightness for Group III base oils.

As February approaches, market participants will monitor post-holiday restocking and refinery turnarounds' impact on supply dynamics.

Europe

The European base oil market experienced a challenging month in January, characterized by weak demand and significant oversupply, particularly in the Group III segment. As of Jan. 29, market sentiment had weakened further, with demand failing to meet expectations as the new year commenced.

In Group I, the demand for SN150 and SN500 remained lackluster, leading to well-stocked grades across Europe. Despite this, bright stock continued to face tight supply, with suppliers treating it as a highly valuable commodity. Spot availability remained limited, even as contractual obligations compelled some suppliers to sell.

The Group III market was marked by considerable oversupply, driven by high refinery run rates and shifts in formulations among blenders. This resulted in price discounts for 4 CST relative to the typically higher-priced 6 CST grade, with Platts last assessing Group III 4 CST at $1,100/mt, down $45/mt week over week. The increased production of diesel also contributed to this pricing volatility, with the front-month 10 ppm diesel CIF NWE Brent crack assessed at $17.84/b, reflecting a decrease of 37 cents/b.

Throughout January, bearish sentiment persisted, with market participants reporting a drop in prices and only half of the usual January volumes being taken. Despite a notable demand for Group III, the overall market remained price sensitive and volatile.

Looking ahead, the European base oil market will be closely monitoring the potential return of Russian players and the impact of refinery turnarounds on supply dynamics, especially as seasonal demand patterns begin to emerge in February.

Americas

The US base oil market saw lackluster demand in January, restricting spot market activity. By the end of 2024, suppliers anticipated a rebound in market activity and base oil prices. In the last week of January, prices rose as supply for heavier grades tightened and demand increased. Market participants expect prices to continue climbing toward spring highs, in line with seasonal trends.

This demand slowdown stems from market instability due to external factors. The Trump administration's tariff agenda and energy sector changes have introduced uncertainty. Although tariffs on China, Canada, and Mexico were postponed from Jan. 20 to Feb. 1, suppliers remain uncertain about the market's future.

Additionally, below-average winter temperatures and harsh weather across the continental US limited vehicle miles traveled, a key indicator of downstream lubricant demand. However, winter weather minimally impacted product supply and refineries.

Heavier grade supplies remained tighter than lighter cuts. Group I's SN500 and Bright Stock maintained a healthy premium in the US and export markets. Group I exports were strong early in the month but dwindled as inventories fell. Group II stocks were balanced to tight, except for 600N, a common substitute for SN500 or Bright Stock. Group III's 4cSt supply was ample, while 6cSt and 8cSt were scarce.

Exports were primarily directed to Latin America, with Mexico as the main market. Proposed tariffs may significantly affect base oil flows with Canada and Mexico, while Group III exporters to the US remained optimistic.