According to most base oil participants, the main issue affecting the markets was the uncertainty related to crude oil and feedstock pricing in the face of potential European bans on Russian exports of crude and refined products, which would likely tighten supply and exert additional pressure on prices. Japan also acknowledged that it would face difficulties if it stopped Russian oil imports over the invasion of Ukraine. These factors were making it difficult for suppliers to make projections and price products.
Another factor that may influence the market in coming weeks was the widespread lockdowns and other pandemic-related measures implemented by the Chinese government to comply with its zero-COVID policies. The lockdowns and massive testing in Shanghai and other cities resulted in factories and offices being closed and a disruption in the supply chain of multiple products.
A similar situation had ensued in the early days of the pandemic, when Chinese factories were forced to idle operations and this resulted in a shortage of automotive parts and components, which in turn had led to global temporary shutdowns at auto plants. Restricted mobility of the population in China was also anticipated to result in reduced consumption of crude oil, fuels, lubricants and other refined products. Demand for base oils has weakened in China and it was not clear when requirements would pick up in earnest.
Base oil supply was deemed generally tight in Asia, despite pockets of softer demand in some countries like China. Climbing crude oil, feedstock and fuel prices have prompted refiners to direct more raw materials into the fuel stream in detriment of base oil output, exacerbating the already snug scenario. However, as base oil prices were edging up and there was nascent demand, producers were striving to increase production rates.
As several turnarounds and maintenance programs wrap up in Northeast Asia– with a couple of South Korean plants returning to production this month–there were expectations that more base oil cargoes would become available for spot business in the coming weeks. Indeed, in shipping circles this week, several inquiries emerged that involved South Korean products looking to be shipped not only within the region, but to the United States and Latin America.
A week ago, a couple of cargoes were discussed for shipment from South Korea to the U.S. Gulf, and this week, a 4,000 metric ton parcel was on the table for prompt shipment from Ulsan to Guayaquil, Ecuador. Additionally, some Korean cargoes were moving to Southeast Asia; 6,000 metric tons were expected to be lifted from Daesan to Singapore and Port Klang, Malaysia, in the second half of June. About 3,000 metric tons were being discussed for shipment from Ulsan to Singapore, also in the second half of June. Buying interest from India remained robust, with a 19,000 metric ton shipment heard to have been concluded from Onsan to Mumbai, India.
While activity was slightly subdued this week due to the Golden Week/Labor Day holidays in Japan, South Korea and China, and the observance of Eid al-Fitr in various countries of the region, in some places in Southeast Asia, buyers have been busy trying to secure cargoes to dodge possible increases later. Base oil values remained exposed to upward pressure due to steep feedstock prices and a tight supply/demand balance. Other regions were also showing a lack of readily available spot cargoes, and it was therefore difficult to find alternative sources of product. Steep freight rates were also seen as an obstacle to short-haul shipments, whereas longer routes offered better netbacks. Participants said that there continued to be opportunities to ship product from Asia to Europe and the U.S., particularly of Group II supplies.
Group II availability appeared more ample than Group I supply, but appetite for the heavier grades has started to pick up, supporting firm price indications. Conversely, in India, demand for the lighter grades was more robust, and was mostly satisfied by domestic and regional supplies. Imports from the U.S. have dried up and it was not clear whether this situation would change any time soon, as domestic demand in the U.S. attracted most of the local output.
Availability of Group I base stocks remained strained and prices have climbed week on week. Buyers appeared willing to raise their price ideas to obtain cargoes, particularly of the heavy-viscosity cuts and bright stock. Southeast Asian producers featured prominently in terms of offering Group I cargoes during the week. There was buying interest noted in India as well, with prices moving up on account of the limited supply and buyers acquiescing to higher bids to secure cargoes. Given the Eid holidays, there were fewer offers for Middle East barrels, but this might change in the next couple of weeks.
Group III supplies should become more available as Group III producers have restarted plants after running at reduced rates or shutting down for maintenance. As was the case with Group I cargoes from the Middle East, fresh offers were scarce because of the religious holidays this week.
Spot base oil prices in Asia moved higher this week, with tight supply and steep 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 $1,120/t-$1,150/t, and the SN500 was assessed up by $40/t to $1,280/t-$1,330/t. Bright stock edged up by $20/t to $1,440/t-$1,480/t, all ex-tank Singapore.
Prices for the Group II 150 neutral moved up by $20/t to $1,260/t-$1,300/t, and the 500N was higher by $20-30/t at $1,330/t-$1,380/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was adjusted up by $20/t to $1,040/t-$1,080/t, and the SN500 was also up by $20/t at $1,130/t-$1,170/t. Bright stock increased by $10/t to $1,230/t-1,290/t, FOB Asia.
The Group II 150N jumped by $50/t to $1,110/t-$1,150/t FOB Asia, and the 500N and 600N cuts were higher by $50/t as well at $1,160/t-$1,220/t, FOB Asia.
In the Group III segment, prices were firmer as well. The 4 centiStoke was assessed higher by $40 at $1,560-$1,600/t, and the 6 cSt was also up by $40/t at $1,540/t-$1,580/t. The 8 cSt grade was also revised up by $40/t to $1,270-1,300/t, FOB Asia, all for fully approved product.
Upstream, crude oil futures jumped on Thursday on supply concerns after the European Union communicated plans for fresh sanctions against Russia, including starting an oil embargo in six months. A decision was expected to be made by EU members on Friday. Meanwhile, OPEC+ did not agree to increase its oil output quota and will only raise June production by 432,000 barrels per day, in line with its original plan.
On May 5, Brent July futures were trading at $113.15 per barrel on the London-based ICE Futures Europe exchange, from $104.70 for June futures on April 28.
Dubai front month crude oil (Platts) financial futures for June settled at $104.34/bbl on the CME on May 4, from $101.51/bbl for May futures on April 27. (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.
Archived base oil price reports can be found through this link: https://www.lubesngreases.com/category/base-stocks/other/base-oil-pricing-report/
Historic and current base oil pricing data are available for purchase in Excel format.