Trading remained muted in the base oils market in Asia, both because of the Lunar New Year holidays celebrated during the week, and because of efforts by the Chinese government to prevent the spread of the new coronavirus.
Chinese authorities extended the Lunar New Year holidays until Feb. 2 to keep the population from traveling and infecting more people with the virus, banned large celebrations and gatherings, and closed schools and businesses across the nation. Transportation to and from several cities was also suspended. In Hubei province, where the city of Wuhan – the epicenter of the outbreak – is located, the holidays have been prolonged until Feb. 14.
The situation was expected to impact economic activity in the nation of almost 1.5 billion people, with businesses like Starbucks, Ikea, Ford and Toyota shutting down locations across the country, and airlines suspending or reducing flights to the mainland, the New York Times reported.
Sinopec operates a refinery in Jingmen, Hubei province, which houses an API Group I and II base oil plant, but no status updates on the plant’s run rates could be obtained by press time.
With automotive and industrial activity being reduced over the holidays and likely for the foreseeable future in some regions of China, demand for base oils and finished lubricants was expected to decline, and there was speculation that refiners would start to trim operating rates in order to avoid an inventory build-up.
Chinese importers were also expecting the arrival of regular shipments from the Middle East. Adnoc was heard to have loaded two Group III cargoes bound for China; a larger cargo was shipped in January and a smaller one was expected to be lifted in February. Whether further cargoes had been booked remained unclear.
Buying interest from several countries, including India, for Group I and II cargoes from the Middle East continued to be described as steady. India, in particular, does not have sufficient domestic production to cover requirements, and imports from Iran – formerly an important source of Group I base stocks – have pretty much dried up, or were only trickling into the country as re-imports from various Middle East ports due to United States sanctions on Iranian oil exports.
Concerns about the possibility that the new coronavirus could reach pandemic levels has also affected activity in many other Asian countries, aside from China. Asian and European stocks slumped this week on growing evidence that the outbreak was disrupting supply chains and consumer spending in both regions, with the negative sentiment spreading to manufacturing segments.
Additionally, volatile conditions in the upstream crude oil market prompted base oil players to take a wait-and-see position, as it was not clear whether current price levels could be maintained. Base oil participants were concerned that if they committed to purchases now, prices might slip later, leaving them with high-priced material in their hands.
Experts maintained that an economic slowdown in the key consumer market China could bring about the fall of crude oil values, and indeed, oil embarked on a downward trajectory for most of the week.
When OPEC and other non-member oil producers announced that they were considering an extension of the output cuts until June of this year, from an original deadline in March, there was a short-lived pause to the price decline.
However, futures fell again on Thursday, as fears persisted over the economic impact of the Wuhan virus in China. A larger-than-expected increase in U.S. crude stocks added to the bearish tone.
On Thursday, Jan. 30, Brent March futures were trading at $58.34 per barrel on the London-based ICE Futures Europe exchange, compared to $62.37/bbl on Jan. 23.
While ample supply and lukewarm demand exerted downward pressure on spot base oil prices, the market was fairly static this week as participants assessed conditions and gradually returned to the market place, following the Lunar New Year holidays.
Ex-tank Singapore Group I prices for the solvent neutral 150 grade were steady at $680/t-$700/t, and the SN500 was at $730/t-$750/t. Bright stock was holding at $820/t-$840/t, all ex-tank Singapore.
The Group II 150 neutral and 500N were unchanged at $720/t-$740/t and $730/t-$750/t, respectively, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was heard at $540/t-$570/t, and the SN500 grade was heard at $550/t-$560/t. Bright stock was stable at $700/t-$720/t, FOB Asia.
Group II 150N was holding at $570/t-$590/t FOB Asia, while the 500N and 600N cuts were steady at $590/t-$610/t, FOB Asia.
In the Group III segment, the 4 centiStoke and 6 cSt were assessed at $770-$800/t and $780/t-$825/t, respectively. The 8 cSt grade was gauged at $720-740/t, FOB Asia for fully approved product.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.
Historic and current base oil pricing data are available for purchase inExcel format.