The Asian base oil market remained surprisingly active, with tight supplies and healthy demand leading to swelling spot values. Even seasoned players were somewhat perplexed at the tight supply and demand conditions at this time of the year, since both producers and consumers typically try to lower stocks, instead of acquiring more product, before Dec. 31.
The current situation can partly be attributed to ongoing reduced operating rates at most refineries due to the demand destruction that affected transportation fuels and eroded refining margins since the onset of the coronavirus pandemic in the first quarter of 2020.
A number of producers have since raised their run rates to respond to increasing demand for a number of distillates and base oils. A South Korean supplier was heard to be operating its plant at close to full rates, but this did not appear to be enough to allow the said supplier to meet all of its term commitments and still have spot cargoes available.
A second South Korean producer has planned a turnaround at its API Group II and Group III plant in the first quarter of 2021, but it has been unable to start building inventories to cover requirements during the outage due to the strong product draw.
The sole Taiwanese Group II producer shipped more product to destinations that do not traditionally form part of its export portfolio, such as the Middle East.
India has also received large quantities of Taiwanese material, but volumes shipped from Taiwan to China declined over the last two months, partly due to more attractive prices elsewhere. It was heard that the producer was struggling to load cargoes at Mailiao given port congestion, and a few shipments may suffer delays.
Some of the product movements observed in recent weeks may shift in coming weeks, as Chinese buyers appeared to have jumped back into the market, following a few weeks of absence. This was partly prompted by a need to secure heavy-viscosity grades and bright stock, which were heard to be scarce in China at the moment.
Chinese consumers were reluctant to raise their bids and were mostly trying to meet requirements through domestic supplies, but these did not seem to be enough to meet demand. They have had to up their price ideas to be able to compete with other regional players.
Another somewhat surprising development this year was that Indian prices have been steadily rising. Buyers were able to secure products from origins such as the United States, Thailand, Taiwan, South Korea, and countries in Europe and the Middle East. In years past, producers at these origins would be selling base stocks at very attractive prices to India to clear their own inventories at home at the end of the year. This was certainly not the case this year, because Indian consumers had to compete against buyers in Southeast Asia, China and the Middle East, given the current lack of surplus material.
Several cargoes were expected to load in the U.S., Singapore, Taiwan and South Korea for shipment to India in December, and January discussions have already started as well.
Domestic producers in India were also heard to have lifted prices for locally-produced base oils and this added pressure to current import price ideas.
Whether the price uptrend would be sustained was unclear, but there were expectations that the market would remain fairly tight well into 2021.
Spot base oil prices in Asia moved up from last week given the tight supply and demand scenario and rising bids and offers, although the upward swing seemed to be decelerating somewhat. Prices also reflected published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were assessed up once again this week on higher price discussions. The Group I solvent neutral 150 grade was higher by $30/t at $675/t-$715/t. The SN500 also moved up by $30/t to $840/t-$880/t and bright stock jumped by $40/t to $930/t-$970/t, all ex-tank Singapore this week.
The Group II 150 neutral was adjusted up by $20/t to $710/t-$750/t, and the 500N was also adjusted up by $20/t to $840/t-$870/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed up by $20/t at $590/t-$630/t, and the SN500 was up by $30/t to $760/t-$800/t. Bright stock was higher by $40/t at $850/t-890/t, FOB Asia.
Group II 150N was assessed up by $20/t at $620/t-$660/t FOB Asia, while the 500N and 600N cuts also edged up by $20/t to $730/t-$770/t, FOB Asia.
In the Group III segment, the 4 centiStoke was revised up by $20/t to $830-$870/t and the 6 cSt was up by $30/t at $850/t-$890/t. The 8 cSt grade moved up by $20/t to $770-810/t, FOB Asia for fully approved product.
Upstream, firm crude oil values were placing upward pressure on base oil price indications, although crude price movements usually do not translate into higher base oil prices overnight. However, they were still seen as one more factor lending support to the climbing spot base oil values.
Crude oil futures were trading at nine-month highs early in the week, but lost some territory on Wednesday on an American Petroleum Institute report that showed a build in U.S. crude oil inventories for the week ending Dec. 11.
Oil prices had been buoyed by an agreement by OPEC+ to maintain production cuts and the rollout of coronavirus vaccinations in Europe and North America.
On Thursday, Dec. 17, Brent February futures were trading at $51.20 per barrel, up from $49.08/bbl on Dec. 10 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures settled at $50.52/bbl on the CME on Dec. 16, from $48.04/bbl on Dec. 9.
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.