Base oil availability seemed to be improving in Asia due to softer demand from downstream lubricant segments on the back of market uncertainties and the widespread pandemic-related lockdowns in the key market China. The ongoing Russian war on Ukraine intensified and so have sanctions on Russian crude oil and refined product exports, causing prices to experience sharp fluctuations and impacting feedstock prices in Asia.
The European Union was hoping to agree on a phased ban on Russian crude oil and natural gas imports as of May, but members were still in discussions as replacing Russian imports was not simple and could not be achieved overnight.
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At the same time, the Chinese lockdowns fueled concerns about a slump in crude demand given that the measures dampened fuel consumption in China, the world’s second largest consumer of crude oil.
Not only did the lockdowns and zero-COVID policies have an impact on energy consumption, but automotive sales have been significantly affected too. Tesla, for example, sold 1,512 vehicles in mainland China last month, down 98% from March, according to data from the China Passenger Car Association cited in an article by CNN.com. Tesla’s production in the country also slid 81% to 10,757 cars in April, compared with 55,462 in March.
Base oil demand in China has fallen compared to levels seen earlier in the year, and this was evidenced in reduced imports, along with the emergence of some export shipments, particularly following the Labor Day holidays observed the first week of May. While a number of base oil facilities resumed output following shutdowns, others were preparing for turnarounds this month.
In India, buyers continued to meet immediate product needs through contractual domestic supplies given a decline in spot availability of imports from the United States and the Middle East. The dwindling supply has encouraged local sellers to increase their offer levels, but consumers tried to resist the elevated prices. However, local refiners have been able to push through moderate price increases. A sharp uptick in gasoil and diesel prices also influenced refinery economics and forced refiners to choose between producing fuels versus base oils. Base oil demand saw a dip last week as an extreme heat wave prompted the Indian government to halt many activities.
Indian buyers’ hopes for competitive cargoes centered on regional imports from South Korea and Taiwan. The main problem was that Northeast Asian suppliers were eyeing more profitable markets such as Europe and the Americas.
Base oil prices have strengthened in other regions, while supply was strained, leading traders to explore the possibility of shipping Asian product there. Some of these transactions were being hampered by logistical issues such as a lack of vessel space and steep freight rates.
Nevertheless, it was heard that a 2,000-3,000-metric ton cargo was being discussed for shipment from Mailiao, Taiwan, to Brownsville, U.S., in June. This type of transactions was thought to be somewhat unusual, but given the price deltas between the regions, transactions like this might become more common. A couple of weeks ago, a Group II cargo was in discussions for shipment from South Korea to the U.S. Gulf and another parcel was also mentioned possibly bound for Ecuador. There was also talk about some South Korean barrels moving to the Caribbean, while closer to home, South Korean suppliers were expected to ship a couple of cargoes to Taiwan given that the Group II plant in that country has suffered some production hiccups, which were thought to be related to a fire at the Mailiao refinery in late January.
Blenders in Asia were anxiously monitoring spot pricing, as it has been steadily moving up since late February. However, despite the persistent upward pressure exerted by steep crude oil and feedstock prices, the recent increases appeared to have slowed down and some values have stabilized. This was partly attributed to the fact that more base oils were being produced in the region, following several planned and unplanned plant shutdowns, along with an increase in run rates at some refineries. There appeared to be improved supply levels of Group I base oils in Southeast Asia, with Thai producers offering additional bright stock and heavy grades this month. Group III supplies were also more plentiful with the return to full production of a couple of South Korean units.
Spot base oil prices in Asia were assessed as stable to firm this week, with easing supply levels encouraging buyers to keep bids steady. Steep feedstock prices continued to support offer levels. 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 $10/t to $1,130/t-$1,160/t, and the SN500 was assessed up by $20/t at $1,300/t-$1,350/t. Bright stock was holding at $1,440/t-$1,480/t, all ex-tank Singapore.
Prices for the Group II 150 neutral were steady at $1,260/t-$1,300/t, while the 500N was higher by $10/t at $1,340/t-$1,390/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was holding at $1,040/t-$1,080/t, and the SN500 was also steady at $1,130/t-$1,170/t. Bright stock was unchanged at $1,230/t-1,290/t, FOB Asia.
The Group II 150N moved up by $40/t to $1,150/t-$1,190/t FOB Asia, and the 500N and 600N cuts were higher by $40/t as well at $1,200/t-$1,260/t, FOB Asia given the perception that these grades were tighter in the region.
In the Group III segment, prices have firmed week on week. The 4 centiStoke was assessed higher by $20 at $1,580-$1,620/t, and the 6 cSt was also up by $20/t at $1,560/t-$1,600/t. The 8 cSt grade was also revised up by $20/t to $1,290-1,320/t, FOB Asia, all for fully approved product.
Upstream, crude oil futures spiked on Thursday after plummeting by almost 10% in the previous two sessions, catapulted by energy supply concerns as Russian natural gas flowing to Europe was expected to fall by 25% because Ukraine has halted the use of a major transit route for Russian oil, citing interference by occupying Russian forces. Meanwhile, the E.U. was still trying to gather support for a Russian oil embargo.
On May 12, Brent July futures were trading at $106.14 per barrel on the London-based ICE Futures Europe exchange, from $113.15 on May 5.
Dubai front month crude oil (Platts) financial futures for June settled at $101.78/bbl on the CME on May 11, from $104.34/bbl on May 4. (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.