Base oil prices continued on an upward trek in Asia, but buyers have grown increasingly cautious regarding volumes and price levels, given market uncertainties and the possibility that values could soften in coming weeks as the supply tightness may be starting to ease.
This phenomenon has been particularly evident in China, where buyers had been eager to secure product during March and early April, and had been willing to raise their bids to compete with Southeast Asian consumers for cargoes offered in that region. Several cargoes had also moved to China from the Middle East and Japan at the end of the first quarter.
However, a seasonal slowdown in demand, improved production levels, competitive base oil prices at home and the perception that current domestic inventories were sufficient to cover the short-term demand for base stocks prompted Chinese buyers to stay on the sidelines in terms of import activity. Several term cargoes from Taiwan and South Korea were expected to move to China in May, helping meet current requirements, and spot buying interest has subsided. China still remained highly dependent on imports of Group III supplies as local production was insufficient.
In another key market, India, buying interest has also trailed off, but the reason was different. The increasing number of coronavirus infections in India and the economic impact of restrictions, the absence of employees at certain manufacturing operations, and reduced mobility has resulted in lower demand for lubricants. Additionally, the restrictions have also affected logistics and transportation. Nevertheless, there were still buyers looking for base oils, but they appeared less willing to secure material at all costs and their price ideas were not as steep as a few weeks ago.
There were also several cargoes from the United States, the Middle East and Northeast Asia slated to reach Indian shores in the next couple of weeks. While volumes of South Korean base oils moving to India have not diminished, there has been a noticeable decrease of heavy grades moving from the Middle East and the United States.
Northeast Asia and Southeast Asia suppliers continued to meet demand within the region, but they were also seeking opportunities in other areas where requirements remained healthy and prices were attractive. One of these destinations was the Middle East, with a number of Southeast Asian cargoes heard to be lined up for shipment there. The Mediterranean was also understood to be attracting Asian cargoes as prices in Europe have shot up in recent weeks, opening arbitrage opportunities. However, participants were slightly more wary about shipping to far-away destinations as prices might soften before the shipment arrived.
The heavy-viscosity grades continued to command premiums over other grades, with bright stock seen as the most elusive of all grades and prices jumping by the highest amounts. According to reports, bright stock offers from Thailand were hovering as high as $1,815-$1,850 per metric ton FOB levels.
Supply within Asia was expected to gradually improve and prices to be less exposed to upward pressure as a number of plants that had been shut down for maintenance have restarted, or were about to resume operations. A few facilities remained off-line, however, and were not expected to restart until June or later.
Two major producers in South Korea, GS Caltex and SK Lubricants, were heard to have restarted their Group II and Group III plants at the end of April after completing maintenance programs since mid-March.
A Thai producer had also brought its Group I plant on-line, following a turnaround in March.
The base oil plant of major API Group I producer Eneos in Wakayama, Japan, remained shut down following a fire on March 29. According to reports, this had prompted ExxonMobil, who sources product at the Eneos refinery to declare force majeure on Group I supplies in Asia Pacific. ExxonMobil’s own Group I facility in Singapore has been idle since June 2020. The producer did not confirm the force majeure declaration or a restart date for the Singapore unit.
Another Eneos Group I plant in Mizushima, Japan, remained off-line for an extended turnaround which started in mid-February and was not expected to be completed until mid-June. A third Eneos facility in Kainan was scheduled for a turnaround starting in early May.
In India, a producer has embarked on an extended turnaround while the associated refinery completes an upgrade, according to sources.
Looking ahead, Taiwanese producer Formosa Petrochemical was heard to have slated a month-long turnaround starting in July.
Spot prices in Asia were stable to firm. Producers offered limited cargoes at much higher levels, but this did not necessarily mean that most buyers were willing to accept these levels given current market conditions. The ranges portrayed below have been revised to reflect discussions, deals and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were steady to higher this week. The Group I solvent neutral 150 grade was unchanged at $970/t-$1,000/t. The SN500 was up by $40/t at $1,570-$1,610/t. Bright stock was also adjusted up by $60/t to $1,850/t-$1,890/t, all ex-tank Singapore.
The Group II 150 neutral was up by $30/t at $1,050/t-$1,090/t, and the 500N was up by $40-50/t at $1,480/t-$1,520/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed up by $10/t at $840/t-$880/t, and the SN500 moved up by $40/t to $1,510/t-$1,550/t. Bright stock jumped by $80/t to $1,800/t-1,840/t, FOB Asia.
Group II 150N was up by $10/t at $840/t-$880/t FOB Asia, while the 500N and 600N cuts moved up by $50/t to $1,280/t-$1,320/t, FOB Asia. There were reports that a supplier had offered 600N as high as $1,500/t FOB Asia last week, but it could not be verified whether a deal was concluded at this level.
In the Group III segment, the 4 centiStoke was assessed up by $20/t at $1,260-$1,300/t and the 6 cSt was adjusted up by $20/t as well to $1,290/t-$1,330/t. The 8 cSt grade moved up by $20/t to $1,210-1,250/t, FOB Asia for fully approved product.
Upstream, crude oil futures strengthened on Thursday, recouping early losses, as crude inventories in the United States – the world’s largest oil consumer – showed a more significant drop than expected, and refining output and exports also improved. Gasoline demand was anticipated to increase with the arrival of the summer driving season, resulting in heightened oil demand as well.
On Thursday, May 6, Brent July futures were trading at $68.72 per barrel, from $68.01/bbl for June futures on April 29 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures settled at $66.30/bbl on the CME on May 5, from $64.53/bbl on April 28 (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.