On Monday, oil traders and analysts gaped at West Texas Intermediate – the United States crude oil benchmark – collapsing to levels never seen before. While the negative numbers were related to May futures, which expired on Tuesday, and June numbers crawled back to positive territory, the terrifying drop showed the desperate situation that crude supplies due to be delivered next month were in, as they seemed to have nowhere to go.

The plunge came despite record output cuts agreed by OPEC, Russia and other producers the previous week, which were not considered sufficient to offset the loss in demand.

Refiners all over the globe have had to cut run rates given the sharp decline in consumption of gasoline and other fuels. The decline has been triggered by driving restrictions and stay-at-home rules, together with reduced commercial transportation of products since many businesses remained closed, although heavy duty vehicles used for the transportation of essential goods remained on the road.

Market participants said that most refineries had trimmed run rates by 20 to 30 percent, and that this was probably not enough, given that gasoline demand was estimated to be 50 percent down from March-April last year. The cutbacks were particularly prevalent in the United States, but refineries in Asia were also trimming operations.

The lower operating rates have also affected base oil output, with several Asian refiners heard to be running plants at 70-80 percent capacity and below.

In some cases, refiners have opted for streaming more feedstocks into the production of base oils in lieu of fuels output, as margins remained more favorable.

In other cases, base oil operations have been shut down temporarily, but the extreme conditions of the market were expected to potentially lead to permanent closures, particularly of those plants that were not deemed profitable.

While most closures may be taking place in the API Group I segment, sources said that it would not be surprising to see Group II and III plants close as well, given that the market was already oversupplied even before the pandemic.

South Korean producers lamented the fact that competition to place base oils at destinations such as India had increased, with U.S. and Middle East cargoes heard to have been lined up for May and June delivery.

There were also reports that Taiwanese producer Formosa Petrochemical, which typically ships large quantities of Group II base oils to China, had shipped more barrels to India instead as demand in China had plummeted during February and March.

Higher volumes of South Korean base oils were heard to have moved to Southeast Asia to make up for the loss of market share in China, with Thailand taking a good number of parcels. This was partly possible because imports from Japan have dwindled given a heavy turnaround schedule and reduced export availability in that country.

Japanese producer JTXG Nippon Oil has scheduled a 45-day routine turnaround in May at its Group I plant in Kainan, and a turnaround at its Negishi Group I plant in September. JTXG also completed a maintenance shutdown at one of its Group I plants in Mizushima in March.

Regional buyers were generally hesitant about securing base oils, even if offered at very attractive prices, as blenders were uncertain whether they would have room to keep the fresh volumes. Demand from various lubricants segments has decreased and base oil tanks were therefore quite full, amid uncertainties about how long the lockdowns would remain in place.

As a result, Northeast Asian suppliers faced the likelihood of inventories growing and finding no space to store the surplus barrels. In an effort to entice customers and move product, suppliers have adjusted prices down quite substantially to reflect current conditions.

While there was a lack of reported transactions, the few discussions that were taking place were hovering at much lower levels than in the previous weeks. Bright stock was the cut that underwent the steepest reductions this week, according to sources. The spot price ranges portrayed below were adjusted down to bring prices more in line with these discussions and with published prices widely accepted as market benchmarks.

Ex-tank Singapore Group I prices for the solvent neutral 150 grade were assessed down by $10-30/t at $580/t-$620/t, and the SN500 was down by $40/t at $620/t-$640/t. Bright stock was also adjusted down by $30/t to $740/t-$760/t, all ex-tank Singapore.

The Group II 150 neutral was assessed down by $30/t at $610/t-$620/t and the 500N was down by $10-20/t at $630/t-$660/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was down by $30/t at $500/t-$520/t, and the SN500 was adjusted down by $20/t to $480/t-$510/t. Bright stock was revised down by $50/t to $590/t-610/t, FOB Asia.

Group II 150N was revised down by $40/t to $480/t-$500/t FOB Asia, while the 500N and 600N cuts were lower by $50/t at $510/t-$530/t, FOB Asia.

In the Group III segment, the 4 centiStoke was revised down by $10/t at the high end of the range to $700-$750/t and the 6cSt was also down by $10/t at the top end at $720/t-$760/t. The 8 cSt grade was assessed down by $10/t at $690-710/t, FOB Asia for fully approved product.

Upstream, crude oil futures continued to slide on Wednesday, with Brent dropping to a two-decade low, trading as low as $15.98 per barrel as the global demand destruction placed pressure on numbers. Values recovered some territory on Thursday after U.S. President Donald Trump threatened military action against Iran.

Meanwhile, China, the world’s largest oil consumer, was ramping up its crude oil stockpiles, taking advantage of the recent collapse in global oil prices, the Associated Press reported. China is reportedly boosting its strategic petroleum reserves as well, taking advantage of a “once in a century opportunity.”

Brent June futures were hovering at $22.12 per barrel on the London-based ICE Futures Europe exchange on April 23, down from $28.33/bbl on April 16. By comparison, Brent futures were near $50/bbl during the first week of March. 

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. 

Historic and current base oil pricing data are available for purchase in Excel format.