This had led to a brief upturn in demand and moderate increases for a number of base oils such as the light viscosity grades. However, other cuts continued to be exposed to downward pressure due to plentiful availability and subdued demand.

Lubricant manufacturers were also anticipated to return to the market to secure base oils for the spring production cycle, when lubricant sales flourish as motorists embark on seasonal oil changes. Lubricant production has been impacted by global supply chain disruptions and supply of certain lubricant products was strained, with some brands not even available on the shelves, sources said.

Some countries such as China have seen less of an impact because many raw materials and parts are manufactured there, and the country has also exercised stricter control over the spread of the Omicron variant. “The supply chain is very tight now – not as much in China, but the raw material prices have been on an uptrend,” a source commented. The shortage of certain raw materials like additives and chemicals in other regions such as the United States has offered Chinese manufacturers opportunities to fill the supply gaps.

Transportation issues, including a lack of storage and vessel space, were also impacting business and continued to drive prices up. Reduced vessel crews and port personnel, together with a lack of space because fewer vessels were covering certain routes continued to affect logistics. Sources said that freight rates were still increasing and were expected to remain on an uptrend for a few more months, but players hoped they would stabilize in the second half of the year. “Otherwise, it may be impossible to generate margins for traders or manufacturers,” sources explained.

API Group I demand had declined over the last few months as Group II base oils had become available at very competitive prices. A wave of Group II imports from the United States in December and January had resulted in lower prices into India, for example. Buying appetite has receded in India because of the expected arrival of several cargoes, not only from the U.S., but from the Middle East and South Korea as well.

There were conflicting currents impacting prices in India, with the lighter grades said to be climbing due to healthy demand and more limited supply, and the heavier grades showing some softening as requirements were not as strong. Buyers appeared to be comfortable as they expected several shipments from other regions, but these cargoes were not likely to meet all of the emerging demand.

Local producers in India were also anticipated to meet some of the requirements, although these suppliers did not appear to have much light viscosity base oil at hand. Some offers for imported material have climbed on renewed buying interest, but consumers were resisting the higher values as they perceived the market to be well-supplied.

At the same time, with the spring season around the corner and the prospect of increased demand for the heavier base oil grades – which are used in formulations for the warmer months of the year – there has been an uptick in demand from other countries, and Northeast Asian suppliers were anticipated to divert their shipments to destinations like China.

Additionally, with the steady rise in crude oil and diesel prices, some refiners were managing the feedstock stream in such a way that they favored the production of fuels in detriment to base oil output, resulting in a tighter supply scenario for base oils.

While Southeast Asian producers were anticipated to be able to offer some spot availability in coming weeks, they have started to focus on contract commitments ahead of the busy lubricant production season, leading to limited volumes for spot transactions as well.

A fire at Formosa Petrochemical’s refinery in Mailiao, Taiwan, on Jan. 21 was expected to lead to a reduction in Group II output and exports from this producer while inspections and repairs took place in coming weeks. Formosa routinely exports large amounts of Group II base oils to China, and cargoes from other origins such as South Korea were anticipated to meet some of the requirements instead.

Chinese buying activity was anticipated to take off over the next few weeks. While some blending facilities had shut down during the Lunar New Year holidays, when employees take leave to visit family, many plants continued to run to catch up on orders that had been delayed due to pandemic-related disruptions. All of this renewed activity was likely to lead to an increase in base oil requirements.

Two planned turnarounds in South Korea in the second quarter may exacerbate supply tightness. It was heard that GS Caltex was planning a turnaround at its plant in Yeosu, South Korea, starting in April. The unit can produce 1.2 million metric tons per year of Group II base oils and 146,000 t/y of Group III grades. Also in Korea, the Hyundai Oilbank-Shell base oils plant in Seosan-si (Daesan), which can produce 1.3 million t/y of Group II base oils, would be shut down in April for a maintenance program.

A Group III unit in Southeast Asia may be marginally impacted by a turnaround at the associated refinery which supplies it with feedstocks for base oil production this month. The turnaround schedule has not been confirmed by the producers directly.

Prices for the Group III grades have remained firm on steady demand, although the 8 centiStoke appeared more exposed to downward pressure as it was more widely available.

Spot base oil prices in Asia were stable to firm, depending on the factors that were influencing each segment as described above. 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 assessed as largely unchanged week on week. The Group I solvent neutral 150 grade was steady at $840/t-$870/t, and the SN500 was also stable at $1,010/t-$1,050/t. Bright stock was holding at $1,160/t-$1,200/t, all ex-tank Singapore.

Prices for the Group II 150 neutral were stable at $870/t-$910/t and the 500N at $1,070/t-$1,110/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was higher by $10/t at $760/t-$800/t, and the SN500 was unchanged at $890/t-$930/t. Bright stock was also steady at $890/t-930/t, FOB Asia.

The Group II 150N edged up by $10/t to $810/t-$850/t FOB Asia, and the 500N and 600N cuts were steady at $850/t-$890/t, FOB Asia.

In the Group III segment, prices were generally stable. The 4 centiStoke was assessed at $1,420-$1,460/t, and the 6 cSt was hovering at $1,400/t-$1,440/t. The 8 cSt grade was assessed at $1,160-$1,200/t, FOB Asia, all for fully approved product.

Upstream, crude oil futures rose on Thursday on reports of a surprise draw in U.S. crude inventories, but the possibility that Iranian exports could resume, depending on the outcome of ongoing indirect talks between Iran and the U.S. in regards to a nuclear deal, also weighed on crude oil values.

On Feb. 10, Brent April futures were trading at $91.61 per barrel on the London-based ICE Futures Europe exchange, up from $88.74/bbl on Feb. 3.

Dubai front month crude oil (Platts) financial futures for March settled at $88.02/bbl on the CME on Feb. 9, from $85.97/bbl on Feb. 2 (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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