There have definitely been encouraging signs in the key market China, as base oil consumers have found themselves with depleted inventories and the need to acquire fresh supplies. Buyers had by and large been staying away from spot import business because domestic supply appeared more than adequate, and prices were competitive, but this position seemed to be changing and more buying interest for imports has started to emerge.

While most local base oil producers in China were running plants at high rates, several plants either remained shut down due to weak market economics and tax inspections or are scheduled to be shut down for maintenance this month and the next. One plant in particular was expected to be offline for about two months, leading to a tightening of API Group II grades. China is affected by a perennial shortage of the heavy grades, and offers for these cuts have therefore been edging up. An exception may be Group I bright stock at the moment, as several Southeast Asian cargoes have been imported into China and remained unsold, placing downward pressure on pricing.

Early signs of a potential economic recovery in China following more lax COVID-19 rules could lead to stronger fuel and lubricant consumption in the automotive segment, as well as in industrial applications, consequently lifting base oil demand. However, in terms of automotive lubricants, the shift to electric vehicles that is being pushed in China might affect demand for conventional motor oils longer term.

A number of base oil cargoes were being lined up for shipment to China. A 2,000-metric ton parcel was discussed for shipment from Malacca, Malaysia, to Zhuhai in second half February. About 18,000 metric tons were quoted for lifting in Singapore and discharge in Taicang and Shanghai the first week of March.

Chinese blenders were also taking more product under term contracts and one of their main sources continued to be Taiwan. The sole Taiwanese Group II producer was expected to ship increased term volumes of base oils to China this month and the next, but spot supplies were likely to be limited by a drive to build inventories ahead of a turnaround at the Taiwanese plant, although this could not be confirmed with the producer directly. Additionally, a 2,000-ton cargo was also heard discussed for shipment from Mailiao, Taiwan, to Singapore in mid-March.

Southeast Asian supplies of Group I grades had ticked up since the end of the year, but an ongoing turnaround at an Indonesian plant has taken several barrels out of the supply system. Nevertheless, there were offers of Thai heavy grades and bright stock on the table this week. Looking further ahead, the permanent closure of a Japanese Group I plant later in the year has spurred concerns about a possible shortage of heavy-viscosity cuts and bright stock in the near future.

For the time being, however, demand in Southeast Asia for most grades – not only Group I – remained somewhat lackluster as buyers were uncertain about conditions in downstream markets. Lubricant demand has yet to pick up in earnest, and buyers also hoped that base oil prices might still edge down on plentiful availability. Many blenders preferred to operate with minimal inventories, or had secured enough product in previous months, when prices had decreased, to keep operations running for a while. Participants anticipated activity to show an upswing in March as buyers will likely have to replenish stocks.

In the Group III segment, supplies of most grades were deemed fairly balanced against requirements, allowing for prices to remain steady. Avid buying appetite for Asian material from the United States and Europe was adding fuel to the fire, allowing suppliers to maintain firm offer levels.

While most refineries have been running well in Asia, firm diesel and gasoil prices might tilt production towards more output of distillates versus base oils, and this could affect supply levels in coming weeks as well.

Another base oil market that has seen a slight tightening of availability was India as blenders have been running at high rates to manufacture finished products and place them in the market ahead of the end of the fiscal year on March 31. There has been an increase in offers of domestic base oils, which were priced competitively as refiners have been able to secure discounted Russian crude oil to run refineries. Despite one base oil plant heard to be undergoing a partial turnaround, there were no shortages noted.

At the same time, given a tightening of supplies from South Korea and Taiwan, there were fewer imports available, and producers felt they were in a good position to keep prices at steady levels from the previous week. About 9,000 tons were on the table for shipment from Yeosu and Ulsan, South Korea, to Mumbai, and Hamriyah, United Arab Emirates, in early March. A 5,000-ton lot was also quoted for lifting in Ulsan to Mumbai at the end of February or early March. About 2,000 tons were also mentioned for lifting in Pyongtaek or Daesan to Chennai in late February.

Additionally, a 4,000-ton to 5,000-ton cargo was heard discussed for shipment from Rayong, Thailand, to West Coast India in late Feb. or early March. A 4,600-ton lot was also mentioned for possible shipment from Singapore to Chittagong, Bangladesh and Kolkata in the first week of March. Approximately 5,000 tons were expected to be shipped from Singapore to Mumbai in mid-March.

Rising demand levels and tightening supplies resulted in stable-to-firm spot assessments in Asia. The price ranges portrayed below reflect discussions, bids and offers, as well as deals and published prices widely regarded as benchmarks for the region.

Ex-tank Singapore prices were unchanged from the previous week. Spot prices for the Group I solvent neutral 150 grade were steady at $920/t-$950/t, and the SN500 at $1,030/t-$1,070/t. Bright stock was assessed within a $1,290/t-$1,330/t range, all ex-tank Singapore.

Prices for the Group II 150 neutral were holding at $970/t-$1,010/t, and the 500N at $1,000/t-$1,050/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was steady at $790/t-$830/t, and the SN500 was heard at $840/t-$880/t. Bright stock prices were hovering at $1,070/t-1,110/t, FOB Asia.

The Group II 150N was up by $10/t at $840/t-$880/t FOB Asia, and the 500N and 600N cuts were also up by $10/t at $860/t-$890/t, FOB Asia.

In the Group III segment, prices were stable, supported by firm fundamentals. The 4 cSt was assessed at $1,520-$1,560/t, and the 6 cSt was hovering at $1,490/t-$1,530/t. The 8 cSt grade was unchanged at $1,210-1,250/t, FOB Asia, for fully approved product.

Upstream, crude oil futures climbed on Thursday on hopes of a robust fuel demand recovery from top oil consumer China, offsetting downward pressure from a large build in U.S. crude inventory and a strong dollar.

In other news, India, which introduced a windfall tax on its oil industry last year amid the oil price boom, has now cut the levy for crude oil and the export of jet fuel and diesel, Reuters reported.

On Feb. 16, Brent April futures were trading at $85.16 per barrel on the London-based ICE Futures Europe exchange, little changed from $85.17/bbl on Feb. 9.

Dubai front month crude oil (Platts) financial futures for March settled at $82.62 per barrel on the CME on Feb. 15, compared to $81.79/bbl on Feb. 9.

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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