UAE's Group III base oil oversupply persists

Market: Oil products
06/02/24

The UAE is facing a persistent oversupply of Group III base oils, with ample availability from regional Middle Eastern refiners and competitive import cargoes from Asia. This has placed downward pressure on selling prices.

Selling competition within the Middle East has intensified and this has placed downward pressure on Group III UAE ex-tank prices, with the 4cst grade in the week to 2 February dropping by close to 25pc since June 2023. Argus-assessed Group III 4cst stood at $1,140/t ex-tank UAE in the week to 2 February, a decrease of $20/t from the previous week.

Asian and Middle Eastern suppliers typically prioritise exporting to the US and Europe for higher netbacks, but the current supplies are more than these regions can absorb. Recent shipping issues and rising freight costs resulting from Red Sea tensions have further hindered exports to these regions.

Demand from blenders in the UAE has remained subdued, with exports of finished lubricants similarly affected as container vessels have been harder to secure and freight costs have risen.

Increasing Group III capacities in Asia has also added to supply pressure.

China, a key export outlet for Middle Eastern Group III volumes, has been increasing its domestic capacities in recent years, reducing the country's reliance on import volumes.

Chinese producer Hainan Handi in early 2023 converted from producing Group II base oil to producing Group III grades, and has a capacity of around 400,000 t/yr. Hongrun Petrochemical started up a new 500,000 t/yr Group III plant in August 2023.

Group III expansions are also expected in India, another key export outlet, in 2024.

The spread between Group III to Group II has narrowed. Group III 4cst ex-tank UAE prices are currently at a premium of $170/t to Group II N150 ex-tank UAE prices, lower than the five-year average premium of around $210/t.

The spread between 4cst and 8cst has also narrowed, with 4cst supplies being more ample, while 8cst is more balanced. Group III 4cst ex-tank UAE prices are at a premium of $100/t to Group III 8cst ex-tank UAE prices, close to the five-year average premium of around $93/t.

By Chng Li Li

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