There was still no evidence that the tight base oil supply situation was starting to ease, and this, together with firming production and transportation costs, continued to drive spot prices up in Asia.
The situation was similar in other regions such as Europe and the United States, dampening arbitrage opportunities and making it difficult to fill supply gaps with imported product, although participants said that more import opportunities for European and Middle East product had started to emerge.
Persistent operating rate reductions at refineries due to lukewarm demand for fuels –
jet kerosene in particular – brought about by the COVID-19 pandemic and the recent surge of infections in several countries contributed to the dearth in supply.
Several base oil plants in Asia have recently undergone, or were completing turnarounds, including two large facilities in South Korea. One of those plants was not expected to be back on stream until mid-April, sources said.
Group I plant turnarounds in Japan, Thailand and India also resulted in more limited availability of spot cargoes, as a majority of producers were focusing on fulfilling contract obligations, while term customers were also drawing as much product under contract as possible.
Additionally, those blenders that were able to replace Group I grades with Group II cuts were doing so as prices were more competitive and availability slightly less strained. A sales tender involving Group I heavy-viscosity grade and bright stock from a Thai producer did not attract as much attention as previous iterations as buyers were hesitant to bid at higher levels than recent transactions.
Buyers in Asia typically procure base oils through a mix of contracts and spot transactions, with many relying mainly on spot purchases. These buyers were now facing many difficulties in obtaining enough base oils and additives to keep downstream operations running. Others were also dealing with exorbitant raw material prices that they were unable to transfer down the supply chain. As a result, some lubricant blenders have reduced operations, or halted production temporarily, hoping for prices to stabilize and for raw materials supply to improve, according to sources.
Aside from mounting raw materials values, base oil consumers were also dealing with escalating transportation costs. Freight rates have increased as fewer vessels were moving on certain routes, or were carrying more lucrative goods, and the Suez Canal closure caused by a container ship that ran aground last week drove the price of crude oil up and was also expected to impact transportation costs in coming weeks.
While most buyers had no choice but to accept rising base oil prices to keep manufacturing operations going, there appeared to be higher resistance to the price increases, with the upward trend deaccelerating this week, compared to last week.
The start of the new financial year in India and local holidays celebrated in some countries in April were expected to dampen base oil demand slightly, which would be a welcome change for those striving to meet demand under the current supply conditions. Still, Indian buyers continued to be on the lookout for the heavy grades and hoped to secure cargoes within the region. Imported volumes from the U.S. have fallen given the high prices and the scarce availability at origin, and there appeared to be increased interest in Southeast Asian and Northeast Asian material instead.
Demand for Southeast Asia imports in China was more subdued, as domestic production was steady, and additional volumes were heard to be moving there from Taiwan and South Korea, and even Russia over the next few weeks, helping meet current demand.
Spot prices in Asia moved up again week on week, given the current supply tightness and firm feedstock values. The limited spot supply resulted in muted trading. The ranges portrayed below have been revised to reflect discussions and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices edged up, but the increases were more moderate than those seen in the previous weeks. The Group I solvent neutral 150 grade moved up by $20-30/t to $940/t-$970/t. The SN500 was steady at $1,480-$1,520/t. Bright stock increased by $50/t to $1,680/t-$1,720/t, all ex-tank Singapore.
The Group II 150 neutral inched up by $10/t to $1,010/t-$1,050/t, and the 500N was up by $20/t at $1,370/t-$1,410/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was unchanged at $830/t-$870/t, and the SN500 moved up by $20/t to $1,450/t-$1,490/t. Bright stock surged by $50/t to $1,640/t-1,680/t, FOB Asia.
Group II 150N was holding at $820/t-$860/t FOB Asia, while the 500N and 600N cuts climbed by $10/t to $1,180/t-$1,220/t, FOB Asia.
In the Group III segment, the 4 centiStoke was assessed up by $20/t at $1,160-$1,200/t and the 6 cSt was also adjusted up by $20/t to $1,180/t-$1,220/t. The 8 cSt grade was also $20/t higher at $1,110-1,150/t, FOB Asia for fully approved product.
Upstream, crude oil futures climbed on Wednesday as analysts expected the
OPEC+ to extend production curbs at their meeting on Thursday. A larger-than-expected draw in U.S. inventories also helped propel prices higher.
On Thursday, April 1, Brent June futures were trading at $63.67 per barrel, from $63.30/bbl for May futures on March 25 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures settled at $60.56/bbl on the CME on March 31, from $62.64/bbl on March 24 (CME note: Settlement prices on instruments without open interest or volume are provided for web users only and are not based on market activity.)
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.