The strained supply and demand balance kept participants on their toes and spot prices on the rise, but participants said values may be close to reaching a ceiling as blenders were largely unable to transfer the base oil increases down the supply chain. Renewed concerns about the coronavirus pandemic and how it might affect demand in key markets such as India were also expected to impact pricing moving forward.
For the time being, quite a few buyers still appeared to be willing to accept the higher offers being bandied around, but the week-on-week increases have diminished in scope. Chinese buyers seemed to be less actively interested in securing cargoes at any cost, and this has alleviated some of the price pressure.
Downstream finished product manufacturers were faced with a challenging environment of rising raw material values and lackluster demand. Both in Asia and the Middle East, market sources said that small-scale companies were shutting down as they were unable to overcome the challenges brought about by the pandemic – particularly lukewarm demand for finished products against rising production costs.
Participants explained that many manufacturers had transitioned their businesses from their core activities to the manufacture of products that were in high demand, such as hand sanitizer and masks whenever possible. The pandemic has unfortunately also forced a number of facilities to shut down permanently.
Base oil supplies remained tight on a global scale. This scenario was brought about by reduced operating rates at various refineries due to a slump in fuel demand; planned and unplanned base stock plant shutdowns, and steady demand as lubricant consumption had recovered after the first onslaught of the pandemic in the second quarter of last year. One important factor affecting refinery rates was the lack of jet kerosene demand; consumption of this fuel was not anticipated to see a marked improvement until the second half of the year.
The United States, which is typically an abundant source of API Group II export supplies, has very little material to offer, as availability was also snug. Buyers in South America, who secure U.S. product on a regular basis, have turned to possible suppliers in Asia and Europe, but it was apparent that they would not be able to source many extra barrels there, and numbers might not be workable either.
At the same time, Indian buyers were also hoping to secure U.S. cargoes, but there were reports that only one U.S. Group II cargo of light grades had been fixed to move to India in April. Consumers were on the lookout for heavy grades, which were more difficult to locate in the U.S. and the Middle East, and hoped to be able to source some Group I heavy-vis cuts in Southeast Asia instead.
The Middle East has also suffered from spot supply shortages, particularly of Group I due to production issues in Iran, a key source of Group I base stocks.
A number of base oil facilities in Asia remained off-line due to ongoing maintenance programs. This was the case of two South Korean plants – GS Caltex‘s plant in Yeosu and SK‘s plant in Ulsan, which were anticipated to be restarted in the second half of April.
In Japan, two Group I production facilities, Eneos‘ Mizushima B and Idemitsu Kosan‘s Chiba plants were understood to be undergoing extended turnarounds.
Additionally, Eneos was forced to idle its Group I base oil production following a fire at its Wakayama refinery on March 29. Reports circulated that ExxonMobil, who sources product at this refinery to meet contractual agreements, had declared force majeure on Group I supplies in Asia Pacific as its own facility in Singapore has also been shut down since June 2020.
The force majeure declaration was not confirmed by the producer directly, however. Buyers of ExxonMobil’s AP/E grades in Japan said that they had not yet received the notification of a force majeure issued in connection with the Group I supply from Eneos in Wakayama, but did confirm the supply disruption caused by the fire at the producer’s facilities. Other customers in Asia received a letter informing them that ExxonMobil had declared force majeure on the following grades: AP/E Core 600, AP/E SN500 and AP/E Core 2500.
Sources in Japan also mentioned that ExxonMobil’s base oil prices had been adjusted up three times in March – along similar lines to the increases implemented on ex-tank Singapore pricing.
Japanese domestic base oil prices have also climbed, with Eneos nominating its Group I 150N price for the second quarter at an increase of Japanese Yen 3.4 per liter from Q1, to Yen 73.36/liter, according to sources.
In Taiwan, Group II producer Formosa Petrochemical was also heard to have raised its domestic list prices three times in March, reflecting the general upward trend observed in the region.
Gasoil prices were higher in Asia on expectations of tighter supply this month due to spring maintenance at regional refineries and the unplanned outages at Eneos’ Wakayama refinery and Pertamina‘s Balongan refinery in Indonesia, also caused by a fire late last month, according to a Reuters article.
The tight base oil supply conditions may not see an improvement until May at the earliest, when facilities will have been restarted and producers can begin to build inventories. At that time, consumers hoped that the upward price pressure would also subside.
In the meantime, spot prices in Asia were assessed as stable to firm, with some of the heavy grades showing small increases given the tight market conditions. However, the limited spot supply resulted in muted activity. The ranges portrayed below have been revised to reflect discussions and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were moderately higher this week. The Group I solvent neutral 150 grade was assessed up by $20/t at $960/t-$990/t. The SN500 was also up by $20/t at $1,500-$1,540/t. Bright stock was adjusted up by $20/t as well to $1,760/t-$1,800/t, all ex-tank Singapore.
The Group II 150 neutral went up by $10/t to $1,020/t-$1,060/t, and the 500N was up by $20/t at $1,410/t-$1,450/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was unchanged at $830/t-$870/t, and the SN500 was steady at $1,450/t-$1,490/t. Bright stock inched up by $10/t to $1,680/t-1,720/t, FOB Asia.
Group II 150N edged up by $10/t to $830/t-$870/t FOB Asia, while the 500N and 600N cuts also moved up by $10/t to $1,200/t-$1,240/t, FOB Asia.
In the Group III segment, the 4 centiStoke was assessed up by $10/t at $1,210-$1,250/t and the 6 cSt was also adjusted up by $10/t to $1,230/t-$1,270/t. The 8 cSt grade also registered an increase of $10/t to $1,160-1,200/t, FOB Asia for fully approved product.
Upstream, crude oil futures rose on Wednesday on reports of a drawdown in U.S. crude inventories and prospects of steady demand as vaccination campaigns proceed in many countries.
On Thursday, April 15, Brent June futures were trading at $66.39 per barrel, from $62.74/bbl for May futures on April 8 on the London-based ICE Futures Europe exchange. Dubai front month crude oil (Platts) financial futures settled at $64.02/bbl on the CME on April 14, from $60.74/bbl on April 7 (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.