Base oil pricing in Asia was stable to firm, supported by revived demand and steep crude oil and feedstock costs. After several months of being exposed to downward pressure due to ample availability and lackluster fundamentals, it appears that prices have reversed course.
A number of unexpected occurrences such as a fire at the Taiwanese API Group II plant in late January and the surge of Omicron cases in a few countries – which resulted in a reduced workforce at manufacturing plants, vessels and ports – has also impacted the supply and demand balance. However, some of these issues have started to improve, with the Taiwanese plant heard to be running at close to full rates again.
While Omicron cases continue to increase in a few countries such as Hong Kong, figures have shown a more optimistic trend in other nations, where some of the pandemic-related restrictions have started to be relaxed. Governments in those countries were hoping this would jumpstart certain economic segments that have stagnated since the start of the pandemic. Shipping continues to be a problem due to the lack of vessel space and climbing freight rates.
Due in large part to geopolitical tensions in Eastern Europe and the reluctance by the OPEC+ to increase crude oil output, crude oil prices have jumped to seven-year highs, and seem to be very sensitive to any news emerging from Russia related to a potential invasion of Ukraine. The steep oil prices have translated into climbing fuel values, which in turn has impacted refinery economics, as some refiners have opted for producing more fuels in detriment to base oil output. As a result, availability of certain base stocks has started to tighten, and this might be exacerbated by an uptick in demand ahead of the spring lubricant production season.
Regional producers have been working hard at placing product, both within the domestic market and to more distant destinations, and this has helped them manage inventories. A 5,000-metric-ton cargo was being discussed for shipment from Daesan, South Korea, to Bangkok, Thailand, and Singapore in mid-March. About 3,900 metric tons were expected to be lifted from Onsan, South Korea, to Taichung, Taiwan, the first week of March. A 4,600-metric-ton lot was on the table to move from Singapore to Ulsan, South Korea, and several ports in Japan in early March. A total of about 12,000 metric tons of six base oil grades were anticipated to be shipped from Singapore to Taicang, China, in early March. A smaller cargo was expected to be shipped from Hong Kong to Tianjin, China, in mid-March.
Chinese buying appetite has strengthened over the last two weeks as participants started to replenish stocks, which had been consumed before the start of the Lunar New Year holidays in early February. China continues to show a deficit of the heavier grades, which was reflected by the keen interest in the heavy-viscosity cuts and bright stock offered by Southeast Asian suppliers. One of the Southeast Asian producers will be shutting down its plant in March for a turnaround, and was expected to have no spot cargoes to offer.
Strict controls in response to the zero-COVID policy of the Chinese government were placing a damper on everyday activities and the population’s mobility, causing some hesitation on the part of lubricant manufacturers as base oil needs were difficult to pin down. Nevertheless, the increased demand was placing upward pressure on base oil prices in China.
In India, suppliers reported steady demand for the light grades and adequate requirements for the heavy cuts. It appears that Group I availability has tightened, but buyers were more resistant to the higher offers for these grades as compared to their Group II counterparts. Still, some moderate increases of about $10 per metric ton have been pushed through for the lighter grades week on week.
Imports were considered plentiful given the recent and upcoming arrival of cargoes from the United States, the Middle East and South Korea. However, some of this product might dry up as refiners have reduced refinery runs and dialed back base oil output. This week, it was heard that a 4,000 to 5,000 metric ton cargo was expected to be lifted from Lake Charles, U.S., to Mumbai, India, in the second half of March, and other similar shipments were being finalized, although the higher freight rates might hamper some of these transactions. There have been increased reports of Middle East cargoes being shipped to India as well.
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 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 steady 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 holding at $760/t-$800/t, and the SN500 was also unchanged at $890/t-$930/t. Bright stock was slightly up by $10/t at $900/t-940/t, FOB Asia.
The Group II 150N edged up by $10/t to $820/t-$860/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 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 plummeted in mid-morning Asian trade on Thursday on indications that an Iranian nuclear deal was close to being finalized, while U.S. crude oil inventories showed an unexpected build last week. These factors overshadowed reports of more Russian forces moving to the Ukrainian border, contrary to Moscow’s earlier reports of a pullback.
On Feb. 17, Brent April futures were trading at $93.74 per barrel on the London-based ICE Futures Europe exchange, from $91.61/bbl on Feb. 10.
Dubai front month crude oil (Platts) financial futures for March settled at $90.71/bbl on the CME on Feb. 16, from $88.02/bbl on Feb. 9 (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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