Just when it seemed that the base oils market was slowly returning to pre-pandemic conditions – or at least, resuming more predictable patterns – Russia launched its invasion on Ukraine in late February, hurling the world into yet another state of uncertainty and turmoil, while new Omicron infections in China triggered renewed lockdowns and additional supply chain disruptions. Crude oil and feedstock prices reacted to these unfortunate events and showed significant fluctuations, which in turn impacted base oil prices.
A majority of base oil grades have moved up over the last month, reflecting not only significant jumps in crude oil values, but also a tightening of supply and invigorated demand as buyers worried about ongoing price pressure and potential shortages.
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A busy turnaround schedule during the next couple of months was expected to exacerbate the already snug supply situation in Asia. These turnarounds were anticipated to affect mainly API Group II and Group III availability, although a shutdown at a Thai Group I facility in March and one starting this month at a plant in Malaysia might compound the already tight conditions in that region. There were some discussions of exports from Southeast Asia to India, with about 4,000 metric tons expected to be shipped from Port Klang, Malaysia, to Kandla and/or Hazira, India, in late March/early April.
Group I prices had fallen steadily for most of the second half of 2021, but they were surging again as demand has picked up and supplies have dwindled. This was partly the result of the rationalization of Group I facilities in favor of more advanced production technologies and high-performance base oils. Nevertheless, demand for Group I grades, and bright stock in particular, did not appear to have abated as some of these cuts are not easily replaced and continue to be used in industrial, marine and railroad applications. Several refiners have also cut back on base oil output rates as they preferred to direct more feedstocks into fuel production due to current market economics.
Group II supplies were also likely to tighten over the next several weeks as there will be turnarounds at South Korean base oil plants and surplus volumes from other regions such as Europe and North America have declined given revived demand. The United States had exported large amounts of Group II base oils during the third and fourth quarters of 2021, particularly to India, but extra availability at origin has started to dry up on increased domestic demand and production adjustments. In terms of imports from Europe, there were no official bans on Russian base oil exports – which often find their way to China and India – but traders were by and large trying to avoid their involvement in negotiations with Russian suppliers due to international sanctions on financial operations.
Demand for Group III continued to grow at a steady pace in response to stricter automotive emissions controls and the need to use high performance, low viscosity base oils in lubricant formulations. This segment was likely to experience some tightening too, given upcoming shutdowns at plants in South Korea and the Middle East.
The Group II and Group III turnarounds included a one-month partial maintenance program at SK’s plant in Ulsan, South Korea, in April-May that would affect Group III production. Also in South Korea, GS Caltex’s Group II and Group III plant in Yeosu, South Korea, was expected to undergo a turnaround for three weeks in April. South Korean producer Hyundai-Shell will also be shutting down its Group II plant in Daesan in late April for slightly over a month of maintenance.
South Korean suppliers were in discussions about a number of cargoes to be shipped in coming weeks, including a small lot from Onsan to Dongguan, China, in early May, and another parcel that was likely to be shipped from Onsan to Singapore the first week of May. A third parcel was expected to be shipped from Ulsan to Singapore in the second half of April. A 5,000-8,000 metric ton cargo was also on the table for shipment from Yeosu to India in late April.
The sole Taiwanese Group II producer was expected to ship product to the Middle East this month, with a 4,000-metric ton cargo being discussed for shipment from Mailiao to the United Arab Emirates around April 10-20, and a smaller lot from Mailiao to Ras Al Khaimah, United Arab Emirates, around the same dates.
In China, base oil demand has been dampened by the latest government efforts to squash the spread of Omicron, and these involved strict lockdowns in several cities. This situation has triggered concerns about a potential slump in lubricant demand levels as the mobility of large portions of the population has been curtailed. Unrelated to the pandemic, Handi Sunshine was heard to have scheduled maintenance at its Group II refinery in Hainan for two months, starting in late March.
Chinese buyers had been looking for alternatives to Southeast Asian imports of Group I base oils because supply has tightened in that part of Asia, and competition with regional buyers has intensified. To buyers’ chagrin, logistical issues and steep freight rates could dampen transactions involving Southeast Asian products to be shipped to more distant destinations. While there were few reports of Southeast cargoes moving to China, interestingly, a 3,000 metric ton parcel of light grades was expected to be shipped from Yangpu, China, to Singapore in early April.
In India, the steady influx of base stock cargoes from the U.S., the Middle East and South Korea seen in previous months was expected to decline in coming weeks as heightened domestic demand and upcoming turnarounds were anticipated to limit the availability of exports from those origins. Consumers were hoping to cover product requirements through purchases from domestic producers, term contracts, and cargoes arriving in the next couple of weeks, and were relying less heavily on fresh spot transactions to avoid price risks. Prices have climbed as a result of the tighter supply conditions and steep feedstock costs, with buyers starting to acquiesce to the higher figures.
According to reports, a major producer based in Singapore was heard to have increased its ex-tank Singapore price indications late last week – the third time in about two months – with its Group I solvent neutral 150 and SN500 moving up by $35 per metric ton and its bright stock by $20/t. The supplier’s Group II 150N was lifted by $65/t and its 500N by $55/t.
Spot base oil prices in Asia have firmed again this week, with a majority of grades showing upward adjustments on steep crude oil prices, tightening supply and healthy demand. 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 edged up this week on a producer’s increase initiative and steady fundamentals. The Group I solvent neutral 150 grade was up by $20/t at $1,050/t-$1,080/t, and the SN500 was also higher by $20/t at $1,200/t-$1,240/t. Bright stock was assessed up by $20/t at $1,330/t-$1,370/t, all ex-tank Singapore.
Prices for the Group II 150 neutral moved up by $40/t to $1,130/t-$1,170/t, while the 500N edged up by $10/t to $1,200/t-$1,260/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 climbed by $10/t to $990/t-$1,030/t, and the SN500 was up by $30/t at $1,080/t-$1,120/t. Bright stock increased by $50/t to $1,160/t-1,200/t, FOB Asia.
The Group II 150N was assessed higher by $30/t at $1,000/t-$1,040/t FOB Asia, and the 500N and 600N cuts also edged up by $30/t to $1,040/t-$1,080/t, FOB Asia.
In the Group III segment, prices were steady. The 4 centiStoke was assessed at $1,480-$1,520/t, and the 6 cSt at $1,460/t-$1,500/t. The 8 cSt grade was holding at $1,190-1,220/t, FOB Asia, all for fully approved product.
Upstream, crude oil futures plummeted as the U.S. was mulling the release of 180 million barrels of oil from its Strategic Petroleum Reserve over several months to meet domestic demand and keep gasoline prices from surging. This would be the largest release in the 50-year history of the SPR. Global oil supplies have felt the squeeze brought on by the war in Ukraine and the ban on Russian oil exports by the U.S. and other nations. OPEC+ was expected to meet on Thursday, but would likely adhere with the moderate output increase planned for May.
On March 31, Brent May futures were trading at $108.64 per barrel on the London-based ICE Futures Europe exchange, from $121.50/bbl on March 24.
Dubai front month crude oil (Platts) financial futures for May settled at $103.70/bbl on the CME on March 30, from $113.74/bbl for April futures on March 23. (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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