There was guarded optimism that the phased reopening of businesses and easing of lockdowns in Asia would lead to an increase in base oil and lubricants market activity, but any significant changes were not expected to be noted for several months.
The number of new coronavirus cases in some countries has shown a steady decrease, with Thailand, for example, recording no new cases in a day for the first time in more than two months on Thursday. As a result, some governments in the region began to cautiously restart previously restricted activities, such as the reopening of schools and government offices.
However, there was also concern that moving too fast to reopen places could lead to a resurgence of coronavirus cases, which is what happened in South Korea. The Covid-19 spread had been under control there until this week, when a cluster of new cases was discovered, leading to a fresh wave of lockdowns. In other countries, such as Singapore and Malaysia, the lockdowns have been extended until the end of June.
Experts anticipated demand for oil and petroleum products to see an increase in coming weeks. Gasoline and lubricant demand will be in higher demand once people venture out of their houses and begin to travel again, while increased commercial activity will bring about an uptick in heavy vehicle fuel consumption for transportation as well.
Those products that go into personal protective equipment, disinfectants, and packaging will also see steady demand or experience a boost, but those that serve the automobile and construction industries might be exposed to downward pressure and a recovery may come much later, as economies reopen. “The demand will be anemic for some time as fears of a virus recurrence continue,” a market insider commented.
Base oil sellers were well aware of the challenges ahead, as buying interest remained depressed and despite the slow restart of some of the regions’ economies, the impact on base oil markets will not be evident right away, as inventories are very high.
“A lot of oil on offer, but not many buyers that we know of,” a market participant acknowledged, while others said that the priority for many producers was to start moving product out of storage so as to be able to accommodate the barrels produced in the next few weeks. Storage remains extremely limited, sources added.
Several parcels of base oils were heard to have moved from the U.S., Saudi Arabia and South Korea to the United Arab Emirates for storage over the last couple of months. Traders were heard to be looking for opportunities to place these cargoes, but buying interest was heard to be muted.
The restart of Abu Dhabi National Oil Co.’s API Group II/III plant in Ruwais, following an extended turnaround, meant that additional base oils would be available in the region as well, although details about the plant’s current operating rates were not available.
The unit was restarted after a routine maintenance program that began in late February, but was extended beyond its original end date in April due to the coronavirus pandemic and the ensuing decrease in base oil demand.
Adnoc made some refinery adjustments during its maintenance shutdown that will improve the quality of its base oils, a source familiar with the company’s operations said.
Adnoc typically ships Group III cargoes into China every month, and it was heard that a trader had told customers that the next cargo would not be available until July. However, participants were somewhat skeptical that there would be need for fresh shipments of Group III as demand for these cuts remains subdued.
Chinese domestic base oil availability has improved with several plants ramping up operating rates. Domestic prices were considered more competitive than imports – even after steep discounts offered by importers – and there were fewer imported cargoes expected to arrive over the next few weeks.
Lackluster buying appetite because of the slowdown in the automotive and industrial segments since the beginning of the year also placed a damper on the conclusion of fresh business.
While Covid-19-related restrictions have largely been lifted in China and manufacturing plants have by and large resumed activities, the lack of demand for Chinese products from export markets in Europe and the U.S. resulted in reduced output levels.
Another key market for imports from the U.S., South Korea and other Asian origins was India, which remained mostly under lockdown measures and had been flooded with base oils in previous weeks. The lack of storage appeared to be a common issue throughout Asia and was also a problem for Indian buyers.
Asian base oil plants continued to run at reduced rates and some capacity has been shut in. Experts predicted that utilization rates of base oil units would fall to an average of 50 percent in 2020.
Current and upcoming 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 last week.
Japanese producer JTXG Nippon Oil has scheduled a turnaround at its Group I plant in Kainan for forty-five 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.
Meanwhile, base oil prices remained difficult to assess, as very few transactions were taking place, but numbers remained under downward pressure. The ranges portrayed below were deemed largely notional on account of the lack of reported business.
Ex-tank Singapore assessments were adjusted down the previous week as the key producer slashed its Group I and II prices by US$50 per metric ton as of April 29.
Prices on an ex-tank Singapore basis for the Group I solvent neutral 150 grade were assessed at $530/t-$570/t this week, while the SN500 was at $550/t-$590/t. Bright stock was heard at $670/t-$700/t, all ex-tank Singapore.
The Group II 150 neutral and 500N were gauged at $540/t-$560/t and $580/t-$610/t, respectively, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was hovering at $460/t-$480/t, and the SN500 at $450/t-$480/t. Bright stock was unchanged at $560/t-580/t, FOB Asia.
Group II 150N was assessed at $450/t-$470/t FOB Asia, while the 500N and 600N cuts were heard 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 steady 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 on Thursday on the back of an unexpected drop in U.S. crude stocks, but the Brent benchmark still hovered near $30 per barrel mark on prospects of weak global fuel demand due to lingering restrictions linked to the coronavirus pandemic.
Brent July futures were hovering at $30.11 per barrel on the London-based ICE Futures Europe exchange on May 14, down from $31.30/bbl on May 7.
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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