Saudi Arabian Base Oil Market Plunges on Discounts During December 2023

December 2023 saw a surprising turn in the Saudi Arabian Base Oil market. After a period of climbing prices in the previous month due to increased exports from Yanbu and Jeddah, coupled with inclining international costs, Group I Base Oil, a key ingredient in lubricants, took a sudden plunge. This expected drop was associated with Luberef, a key supplier of Saudi Arabia, trading their cargos at discounted prices to attract buyers, particularly from the UAE during this time frame. While the December discounts may have cleared inventories, the shipping issues leave a cloud of uncertainty over January's prices.

As per the recent assessment, the attraction of discounted deals and inventory clearance swept through the Saudi Arabian Base Oil market in December, sending prices falling despite a prior uptrend to settle at USD 1410/MT Base Oil Group-III 4cSt FOB Dammam with a drop of 2.8% compared with the last month. This drop was associated with Luberef, the most attractive option for the UAE, offering quality Base Oils at attractive discounts. Many blenders, eager to clear inventories before the New Year, jumped at the opportunity, leading to significant trader activity aimed at depleting stocks. This collective push to offload inventory contributed to the downward price trend for the Base Oil market in Saudi Arabia. Adding fuel to the price decline was the steady flow of Luberef-supplied cargoes, exceedingly more than 15,000 tons of both Group I and II Base Oils, from Yanbu and Jeddah to UAE ports. Despite ongoing shipping challenges, these regular shipments continued to find their way to markets beyond the UAE, further dampening prices.

However, amidst this bearish December, a potential storm brews on the horizon for January. While the supply volume temporarily masked the issue, a lack of available vessels to transport cargoes from Yanbu and Jeddah threatens to disrupt exports to crucial destinations like India, the UAE, South Africa, and Singapore. Navigating the Bab al-Mandeb Strait, a potential flashpoint in the ongoing conflict between Saudi Arabia and Yemeni rebels presents a particular challenge. Saudi-flagged vessels may face discrimination from Houthi rebels, potentially hampering shipments. Delays and cancellations, particularly for Group III Base Oils destined for Europe and the US, are a real possibility. As per ChemAnalyst, the rise in Base Oil prices from Saudi Arabia is expected in January 2024 as the Red Sea blockage could disrupt deliveries to Middle Eastern Gulf ports, further complicating the supply chain in the upcoming period. This volatile scenario presents challenges for navigating cargo of respective commodities in the upcoming period.