Brent crude and West Texas Intermediate crude futures were trading above $120 per barrel on Thursday morning and could move up further given current conditions despite the recent release of strategic reserves and increased OPEC output, according to analysts at Goldman Sachs.

On Thursday, oil futures jumped to 13-week highs on growing United States gasoline demand, along with expectations that Chinese oil consumption would grow in coming weeks as COVID-19 restrictions were being gradually lifted.

Crude oil futures in Tokyo have also risen to their highest level in almost 14 years amid a surge in global benchmark prices, NHK News reported.

On June 9, Brent August futures were trading at $122.83 per barrel on the London-based ICE Futures Europe exchange, from $113.48/bbl on June 2. A year ago, Brent was trading at around $70/bbl.

Dubai front month crude oil (Platts) financial futures for July settled at $114.92/bbl on the CME on June 8, from $107.70/bbl on June 1.

The steep oil prices have caused gasoline and diesel prices to shoot up, and this situation was influencing refiners’ decisions as to what area of the refinery to stream more feedstocks into. In many cases, fuel production was favored over base oil output, and this has resulted in reduced availability of certain grades.

The API Group I segment was generally tighter than other categories because of a lower number of producers in Asia who were able to offer spot volumes. It was heard that there was keen interest in Southeast Asian product, with bright stock commanding lots of attention as this cut is difficult to replace. Chinese buyers were heard to be vying for the heavy grades, but they were facing stiff competition from Southeast consumers, who have the advantage of proximity and easier logistics. To make matters worse, there were very few offers of heavy grades as suppliers have been able to place most of their available cargoes this month.

Group II supplies were also deemed tight, as those buyers unable to find Group I cargoes looked for alternative grades and prices were competitive. However, regional Group II cargoes were being moved to other regions where margins were higher, such as Europe and the Americas, leaving little spot supply for Asian consumption.

A recent Group II plant shutdown in South Korea was also limiting spot volumes from that country. At the same time, the sole producer of Group II base oils in Taiwan was heard to have spot availability this month, following several weeks of limited supply due to production issues that stemmed from a small refinery fire earlier in the year. An 8,000-10,000 metric ton cargo was heard in discussions for shipment from Mailiao to Argentina in the second half of June or the first half of July.

Group III supplies were plentiful as producers have ramped up run rates in South Korea, after the completion of maintenance programs. There was a steady flow of Middle Eastern product as well. Prices moved up slightly due to the climbing crude oil and feedstock costs.

China was starting to see increased activity in base oil and lubricant segments on an easing of pandemic-related lockdowns, with a large part of the population in the Shanghai area now free to move outside of restricted areas. This, together with the arrival of the warmer weather and the driving season, was expected to lead to heightened base oil and lubricant demand.

Increased import activity offered evidence that demand had started to pick up, with several South Korean cargoes being considered for shipment to China. A small base oil cargo was on the table to move from Onsan to Jingjiang this month. Another parcel was being discussed for shipment from Yeosu to Tianjin in mid-June.

In India, base oil demand appeared to be softening due to the start of the monsoon season when logistics are impaired by the heavy rains. Base oil consumption briefly picked up in May, following several lackluster months when COVID-19 infections, inflation and high gasoline and diesel prices were limiting the population’s consumption levels.

The dearth in imports from the U.S. was offset by product from South Korea, Singapore and the Middle East in April and May, and June transactions appeared to be fairly healthy as well, offering alternatives to domestic product, particularly as a local producer will be embarking on a turnaround later this month. However, buyers were resisting the rising price indications.

A 3,000 metric ton cargo was being considered for shipment from Hamriyah, United Arab Emirates, to West Coast India in mid-June. Around 17,000 metric tons of seven base oil grades were on the table from Yanbu and Jeddah, Saudi Arabia, to Mumbai, India, for June lifting. Interestingly, there was also mention of a 3,000-7,500 metric ton lot being discussed from West Coast India to Houston, United States, in June or early July.

Buyers in India were also relying heavily on domestic product acquired under term contracts, but they were careful not to build inventories of highly priced material in case values started to soften. However, observers said this was unlikely for the time being as regional supply remained exposed to upward pressure given strong fundamentals.

Spot base oil prices in Asia were assessed stable to firm this week, with steep feedstock prices and tightening supply placing upward pressure on price ideas. 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 generally stable, with spot prices for the Group I solvent neutral 150 grade assessed at $1,170/t-$1,200/t, and the SN500 at $1,360/t-$1,400/t. Bright stock was holding at $1,470/t-$1,510/t, all ex-tank Singapore.

Prices for the Group II 150 neutral were steady at $1,300/t-$1,340/t, while the 500N was mentioned at $1,380/t-$1,420/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was unchanged at $1,070/t-$1,110/t, but the SN500 moved up by $20/t to $1,220/t-$1,260/t. Bright stock was higher by $20-30/t at $1,320/t-1,370/t, FOB Asia.

The Group II 150N moved up by $20/t to $1,270/t-$1,310/t FOB Asia, and the 500N and 600N cuts were also higher by $20/t at $1,310/t-$1,360/t, FOB Asia given that these grades have tightened.

In the Group III segment, prices showed moderate increases. The 4 centiStoke was assessed up by $10/t at $1,610-$1,650/t, and the 6 cSt was also up by $10/t at $1,600/t-$1,640/t. Similarly, the 8 cSt grade edged up by $10/t to $1,330-1,360/t, FOB Asia, all for fully approved product.

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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