Despite plentiful availability of most base oil grades, sentiment in Asian markets has shifted, with some spot price ideas firming on the back of steeper crude oil and feedstock costs.
The prolonged outage at a refinery in Yanbu ‘al Bahr, Saudi Arabia, which is a regular source of API Group I and II base stocks, was also heard to be impacting pricing in destinations such as India. The shutdown was heard to be ongoing and may be extended through the end of April, according to sources.
While participants agreed that Indian spot prices remained competitive compared to indications in most Asian markets, prices for Group I cargoes were said to have moved up as availability has contracted. The lack of product influx from Iran due to United States sanctions on Iranian exports of crude oil and products was also mentioned as a factor.
On the other hand, prices for Group II base oils remained flat or continued to be exposed to downward pressure in India as several cargoes were scheduled to arrive from the U.S. Gulf in the next few weeks. A major U.S. Group II producer was heard to have concluded a couple of transactions into India, as well as the United Arab Emirates, while another large U.S. refiner has also finalized shipments into India over the last two weeks.
Group II prices were also exposed to downward pressure in China due to ample availability of most cuts and lackluster demand. Sources said that uncertainties in downstream segments such as the automotive industry on the back of a general economic slowdown have resulted in weaker demand than anticipated for this time of the year. Buyers maintained a cautious stance and secured smaller cargoes instead of building inventories for the spring season.
Conversely, spot prices for Group III parcels were reported to have inched up by about $15 per metric ton in China, where availability was heard to have tightened, even though a few Middle East cargoes were heard to have been booked for arrival in late March/April, and the start-up of a new Group III plant was imminent.
The Hengli Petrochemical plant in Dalian, which will have capacity to produce 683,000 metric tons per year of Group II/Group III base oils, was expected to start production in April, although producer confirmation was not forthcoming. There was talk that product from the new Chinese plant would not be commercially available for a while.
At the same time, there were reports that the start-up of the new Hainan Handi Sunshine Petrochemical base oil plant had been delayed until the end of the year. Hainan Handis Group II+/Group III plant was originally slated to come on stream in 2016, and more than double Chinas domestic supply of those grades, but the project has been delayed due to market economics, according to industry observers.
The recent jump in crude oil and feedstock values continued to distress producers as these hikes have encroached on base oil margins. Some refiners were heard to be mulling an increase in fuels production versus base oils because of better returns.
Crude oil was hovering near 2019 highs this week, supported by a sharp tightening of global stocks, OPEC production cuts, and U.S. sanctions on key producers Iran and Venezuela. Prices were also supported by a drop in U.S. crude oil stockpiles, which showed their largest decline since July 2018.
Brent May futures were trading at $67.94 per barrel on the London-based ICE Futures Europe exchange on March 21, slightly up from $67.31/bbl on March 14. By comparison, futures were trading near $60/bbl on Jan. 17, 2019.
Spot base oil prices in Asia were stable-to-firm, with some grades showing an uptick on higher bids and offers.
Ex-tank Singapore prices were adjusted up to reflect reported increases by a major Singapore refiner; the Group I solvent neutral 150 grade edged up by $10/t to $750-$770/t per metric ton, while SN500 was also up by $10/t at $760/t-$800/t. Bright stock edged up by $10/t to $880/t-$900/t, all ex-tank Singapore.
Group II 150 neutral was assessed up by $10/t at $750/t-$790/t, while 500N also inched up by $10/t to $770/t-$810/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was unchanged at $640/t-$670/t, after moving up last week, and the SN500 grade was up by $10/t at $620/t-$640/t. Bright stock was unchanged at $780/t-$800/t, FOB Asia.
Group II 150N was up by $10/t at $600/t-$620/t FOB Asia, while the 500N and 600N cuts were steady at $610/t-$630/t, FOB Asia.
In the Group III segment, the 4 centiStoke grade was adjusted up by $5/t to $825-$865/t and the 6 cSt was also up by $5/t at $835/t-$885/t. The 8 cSt grade was assessed at $720/t-$750/t, FOB Asia for fully-approved product.
In other market news, a fire that broke out at Intercontinental Terminals Company (ITC) in Deer Park, Texas, on Sunday morning, was finally extinguished on Tuesday, the Houston Chronicle reported. The fire had started at the terminal that stores petrochemical liquids and gases, including fuel oil and bunker oil. Market sources said that some of the products in storage were base oils and lubricants, since the facilities are part of a large distribution center, with some of the stored base stocks heard to have been imported from South Korea. However, the supplier of these base oils said that the fire had not affected its storage tanks. “ITC has declared force majeure, so it is unclear even after the fire subsides what ITCs operations will be like upon resumption,” the source noted.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.