Market sources hoped that as the population was allowed to move more freely in the next few weeks, demand for gasoline and lubricants would start to improve. However, a majority of players were aware that it might take a few months for demand to crawl back to pre-Covid-19 levels, and some even ventured to estimate that a full recovery may take at least a couple of years.

Manufacturing plants in several countries, including China, India, and Malaysia, have restarted operations, and this was good news for the automotive industry, which appeared to be one of hardest hit sectors among lubricant users.

Tire and adhesive manufacturers, which are large consumers of lubricating oils, had seen a crushing setback in output levels over the last couple of months, but were expected to ramp up production in the next few weeks.

However, experts also warned that due to the dramatic economic downturn experienced in most countries, and the dire financial situation of a large part of the population, who has lost jobs and income due to the pandemic, car sales were anticipated to be dismal in coming weeks.

This would likely affect lubricant demand, sources noted.

In China, the availability of competitively-priced domestic base oils were thwarting buying appetite for imports, as foreign barrels were offered at higher levels and commanded a premium due to additional costs such as insurance and transportation. Some distributors appeared to be willing to sell product at a loss in exchange for being able to maintain market share and move product out of storage.

Likewise, domestic prices in Taiwan were considered competitive as the local producer, Formosa Petrochemical Corp., slashed its domestic list prices for May shipments. Formosa lowered its API Group II 70 neutral and 150N by New Taiwan Dollars (NT$) 3.09 per liter, while its 500N grade was reduced by NT$ 1.21 per liter.

Base oil buying interest was not particularly strong in most of Asia, even after a long period without the conclusion of fresh transactions, as consumers were trying to clear out existing inventories and downstream demand was not expected to take off significantly for some time.

Given the strong uncertainty as to when finished lubricant consumption would improve, base oil demand remained extremely weak, prompting regional suppliers to adjust prices down.

But even the lower levels failed to attract buyers, as it was not a matter of price that was driving business – or the lack thereof, but a question of where to store product and when it would finally start to be utilized, as storage facilities were close to capacity and business was not moving very swiftly.

There were reports that South Korean suppliers had revised down offers into India and the United Arab Emirates as a means to entice buyers. A freight inquiry for 20,000 metric tons from Ulsan to U.A.E. was mentioned, but sources were doubtful that this cargo would be able to be placed with buyers as there was not enough demand in the UAE to absorb such an amount of product, according to sources. “It is wishful thinking,” a source remarked.

Aside from regional base oil suppliers vying for business in places like India and the Middle East, it was heard that United States producers were also targeting these areas to offload some of their surplus barrels, and that prices being discussed were barely covering production costs.

Approximately 40,000 metric tons were heard to have moved from the U.S. Gulf to India and

the Middle East in the last couple of weeks.

However, India remained under lockdown for the most part, and base oil demand was minimal, as buyers were still trying to work off existing inventories.

Market insiders shared their opinion that the solution was not “to lower and lower prices,” but to limit supply, and this could only be achieved by cutting back refinery run rates or shutting down altogether.

A vast number of Asian base oil plants were already running at reduced rates, and some may end up shutting down either temporarily or permanently, according to sources. “It will take more and more shutdowns of the huge Group II refineries in Asia and the U.S. to really make a difference,” a market source noted.

Upcoming and ongoing planned turnarounds may help reduce the oversupply, with several plants heard to have slated maintenance in the next few months.

In China, PetroChina was heard to have started a two-month turnaround at its Group I plant in Dalian this week.

Japanese producer JTXG Nippon Oil has scheduled a turnaround at its Group I plant in Kainan for 45 days this month, and will conduct a maintenance program at its Negishi Group I plant in September. JTXG also completed a maintenance shutdown at one of its Group I plants in Mizushima in March.

In Singapore, Shell was expected to have taken its crude distillation unit in Pulau Bukom, Singapore, off-line for maintenance in mid-April until the end of May. The refinery produces Group I base oils.

Base oil spot price assessments seem to have steadied or fallen slightly after sharp downward adjustments last month, given that suppliers were trying to maintain levels in view of a potential, albeit slow, recovery of market conditions. An exception to this were the ex-tank Singapore assessments, as the key producer has slashed its Group I and II prices by US$50 per metric ton as of April 29.

Nevertheless, buyers were largely absent from the trading scene and little fresh business was reported, with some ranges undergoing moderate downward revisions.

Ex-tank Singapore Group I prices for the solvent neutral 150 grade were assessed down by $50/t to reflect the major refiner’s decreases to $530/t-$570/t, while the SN500 was adjusted down to $550/t-$590/t. Bright stock was also down by $50/t at $670/t-$700/t, all ex-tank Singapore.

The Group II 150 neutral and 500N moved down by $50/t to $540/t-$560/t and $580/t-$610/t, respectively, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was down by $20/t at $460/t-$480/t, and the SN500 was adjusted down by $10/t to $450/t-$480/t. Bright stock was unchanged at $560/t-580/t, FOB Asia.

Group II 150N was revised down by $10/t to $450/t-$470/t FOB Asia, while the 500N and 600N cuts were lower by $20/t at $470/t-$490/t, FOB Asia.

In the Group III segment, the 4 centiStoke was unchanged at $690-$740/t and the 6cSt was down by $10/t at $700/t-$740/t. The 8 cSt grade was hovering at $680-700/t, FOB Asia for fully approved product.

Upstream, crude oil futures edged up slightly on Thursday as data showed China’s crude imports had improved, but analysts expected gains to be capped by the glut in supplies as the coronavirus pandemic continues to suppress global fuel demand.

Brent July futures were hovering at $31.30 per barrel on the London-based ICE Futures Europe exchange on May 7, up from $25.30/bbl for June futures on April 30.

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. 

Historic and current base oil pricing data are available for purchase in Excel format.