Since it is impossible to predict when the war in Ukraine will end, oil markets are expected to remain volatile for some time, spurring uncertainties in downstream segments as well. The whole energy complex is under threat of being disrupted due to the conflict in Ukraine and the significant role Russian exports play within Europe. On Wednesday, Russia cut off its natural gas supply to Poland and Bulgaria and threatened to do the same to other countries – notably Germany – because of their support of Ukraine, catapulting gas prices within the European Union to multiyear highs. Russian gas meets 40% of the gas needs in Europe, Reuters reported.

While there appeared to be no interruption in Russian crude oil shipments to countries in Asia, like China and India, the volatility in energy markets fanned concerns of potential shortages. Fuel prices have climbed, and many refiners were favoring the use of feedstocks for fuel output over base oils, which was limiting supplies.

A pickup in base oil demand in Southeast Asia and India resulted in several cargoes being booked from Northeast Asia, while requirements from China have declined, freeing up extra barrels. South Korean API Group II and Group III supplies were expected to remain tight on the back of recent and ongoing maintenance at base oil plants. The sole Taiwanese Group II producer was heard to be planning to increase production rates after completion of a maintenance program in April.

Given lukewarm demand in China – which is a regular receiver of Taiwanese base oils – the supplier was able to offer spot cargoes to other destinations. A 2,000-metric-ton cargo was expected to be shipped from Mailiao, Taiwan, to Singapore at the end of May.

Most uncertainties in the Chinese market were related to a tense business environment as the government implemented strict lockdowns in large cities, like Shanghai, and could potentially extend its lockdowns to Beijing to meet its zero-COVID policy. The lockdowns resulted in many businesses and manufacturing plants having to idle operations due to a lack of employees, and this, in turn, led to product shortages.

Lockdowns were also expected to reduce the use of transportation and driving and lead to a slump in the consumption of fuels and lubricants. The supply chain disruptions also led to irregular port operations and terminal congestion. Increasing bunker fuel prices and limited vessel space have resulted in soaring freight rates in Asia.

In shipping circles, there was talk of a 10,000-metric-ton cargo made up of five grades that was expected to be shipped from Singapore to Taicang, China, in mid-May. Alternatively, a smaller cargo made up of four grades was being discussed for shipment from Singapore for discharge at several Chinese ports in early May. In contrast, sporadic exports emerged from China to other Asian ports, with a 3,000-metric-ton cargo being discussed for shipment from Taizhou, China, to Kandla, India, in late May.

Group I base oils were experiencing significant upward pressure due to strained availability and healthy requirements. The permanent shutdown of Group I plants in recent years and upcoming closures have resulted in a marked reduction of certain grades, which continue to be widely used in the industrial, marine and railway sectors. Bright stock, in particular, enjoyed strong demand while regional availability remained strained. However, it was heard that Thai Group I plants were running well and refiners had offered some bright stock cargoes to regional buyers.

In India, domestic refiners were focusing on fuel production and base oil inventories were said to be low, with prices described as generally steady. The influx of imports was constrained by a lack of spot export offers from regular exporters, like the United States, and hesitation on the part of Indian buyers to up their bid levels given the many uncertainties plaguing the market.

U.S. suppliers had shipped several cargoes to India during the first quarter but were now trying to meet healthy domestic demand and had very little additional supply for export business. Middle East cargoes were also available, but in more limited quantities than earlier in the year because of robust domestic requirements. South Korean imports were expected to increase in coming weeks as plants increase run rates or return to production following maintenance.

While supplies from South Korea had been anticipated to remain tight due to recent and ongoing turnarounds, it appeared that several cargoes have already been offered in the market for May shipment. A 5,000-metric-ton parcel was being discussed for shipment from Daesan or Kunsan or Pyeongtaek to the U.S. Gulf in the second half of May. An alternative cargo was heard for shipment from the same ports to Mumbai, India, and/or Karachi, Pakistan, in early May. About 10,000 metric tons were being considered for shipment from the same South Korean ports to European ports for May and June dates. A 1,100-metric-ton cargo was expected to be shipped from Onsan to Karachi in 1H May. Another 3,000-4,000 metric tons were expected to be concluded from Ulsan to Singapore for prompt shipment.

Spot base oil prices in Asia were stable to firm this week, with tight supply and firm feedstock prices supporting current indications. The ranges portrayed below reflect bids and offers, as well as deals and published prices widely regarded as benchmarks for the region.

Ex-tank Singapore prices were higher week on week. The Group I solvent neutral 150 grade climbed by $30/t to $1,090/t-$1,120/t, and the SN500 was also adjusted up by $30/t to $1,240/t-$1,290/t. Bright stock surged by $40/t to $1,420/t-$1,460/t, all ex-tank Singapore.

Prices for the Group II 150 neutral moved up by $30/t to $1,240/t-$1,280/t, and the 500N moved up by $30/t as well to $1,300/t-$1,360/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was adjusted up by $20/t to $1,020/t-$1,060/t, and the SN500 was steady at $1,110/t-$1,150/t. Bright stock increased by $30/t to $1,220/t-1,280/t, FOB Asia.

The Group II 150N jumped by $50/t to $1,060/t-$1,100/t FOB Asia, and the 500N and 600N cuts were higher by $30/t at $1,110/t-$1,170/t, FOB Asia.

In the Group III segment, prices were firmer as well. The 4 centiStoke was assessed higher by $40 at $1,520-$1,560/t, and the 6 cSt was also up by $40/t at $1,500/t-$1,540/t. The 8 cSt grade was revised up by $40/t to $1,230-1,260/t, FOB Asia, all for fully approved product.

Upstream, crude oil futures bounced around on Thursday on tightening Russian supplies and the prospect of dwindling fuel demand in China – the world’s biggest oil importer – as more lockdowns were likely to be implemented on rising coronavirus infections.

On April 28, Brent June futures were trading at $104.70 per barrel on the London-based ICE Futures Europe exchange, from $107.97 on April 21.

Dubai front month crude oil (Platts) financial futures for May settled at $101.51/bbl on the CME on April 27, from $102.55/bbl on April 20. (CME note: Settlement prices on instruments without open interest or volume are provided for web users only and are not based on market activity.)

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.

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