The base oil supply and demand balance remained strained in Asia, although availability of a number of grades appeared to be improving. Several suppliers were looking for opportunities to place the extra barrels in other regions and avert downward pressure on pricing. Firm crude oil futures also offered support to current base oil values.
Some of the recent base oil movements were relatively atypical, but market conditions and the coronavirus pandemic have changed many of the traditional trading patterns. For example, a number of cargoes moved from China to Southeast Asia and India in recent weeks. China has generally been a net importer of base oils, but oversupply of certain grades – such as some API Group II cuts following the start-up of new base oil plants and lower domestic prices – and an unexpected demand increase in some areas has allowed for more exports to take place.
Get alerts when new Sustainability Blog articles are available.
At the same time, Chinese buyers have secured several cargoes in Southeast Asia in previous months due to a decline in Group I shipments from Japan, given production outages in that country. Most recently, a base oils parcel was heard to be in discussions to move from Thailand to Nantong, China, at the end of the month or early August.
The Chinese market continued to struggle with bright stock shortages. While importers had been able to secure a few cargoes in Southeast Asia earlier in the year, most cargoes were currently staying within Southeast Asia given healthy demand and snug supply there.
Other movements involved South Korean material being shipped to Brownsville, Texas, in the United States, from where it was likely to make its way to Mexico. A shortage of certain base stocks in the U.S., which is the main supplier of these grades to Mexico, along with attractive pricing facilitated these transactions. Other Asian shipments were heard to be moving to the Middle East and several destinations in Latin America. However, there has been a sudden decline of offers from South Korean producers as they did not seem to have substantial surplus any longer, with one supplier heard to have halted offers as it had suffered a production setback.
The improved availability for certain grades in Asia stemmed from the fact that a number of turnarounds that took place in the first half of the year have been completed, and plants that suffered unplanned outages have restarted. At the same time, a large Group II producer in Taiwan has scheduled a turnaround this month, which was expected to last approximately two months. The supplier regularly ships significant amounts of base stocks to China under contract and for spot business, and there were expectations that shipments would be limited to term cargoes this month and involve lower volumes than usual. Taiwan had also exported cargoes to Southeast Asia and the Middle East in recent weeks, and these shipments were expected to be either reduced or suspended for the time being.
Meanwhile, while some countries in Asia such as India appeared to be recovering from the onslaught of the coronavirus pandemic, others were dealing with rising infection rates. Indonesia – a major consumer of automotive lubricants – was becoming Asia’s new COVID-19 epicenter, registering more daily cases than hard-hit India. This might affect base oils and lubricants consumption in coming weeks.
In India, base oil prices remained fairly stable, supported by steady demand and adequate availability. While lubricant consumption has improved after the second wave of coronavirus infections, the demand trend was slightly different from the one that followed the first wave last year. Blenders appeared less anxious to secure cargoes as they expected more supply to become available in coming weeks. While shipments from the U.S. have all but dried up, there has been in increase in cargo movements from the Middle East.
In June last year, the supply situation in India was more dire because many refineries were running at reduced rates and several base oil plants were undergoing turnarounds, which coincided with a revival in demand. This time, buyers were taking as much product under contract as possible, but were more reticent when it came down to spot transactions, and less willing to acquiesce to steep offer levels.
Spot base oil prices of Group I and II grades were stable to softer in Asia, with some indications seeing downward adjustments on lower bids and offers. This was particularly the case for Group I heavy-viscosity grades, as shipments of heavy grades from the Middle East have relieved some of the pressure seen in previous months. On the other hand, a tightening of Group III supply supported higher numbers. 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 softer week on week. The Group I solvent neutral 150 grade was steady at $950/t-$980/t, but the SN500 edged down by $20/t to $1,500/t-$1,540/t. Bright stock was also slightly lower by $20/t at $1,850/t-$1,890/t, all ex-tank Singapore.
The Group II 150 neutral was unchanged at $980/t-$1,020/t, while the 500N was holding $1,450/t-$1,490/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was unchanged from the previous week at $830/t-$870/t, while the SN500 fell by $40/t to $1,470/t-$1,510/t. Bright stock was also adjusted down by $40/t to $1,770/t-1,810/t, FOB Asia.
Group II 150N was stable at $840/t-$880/t FOB Asia, while the 500N and 600N cuts were also steady at $1,290/t-$1,330/t, FOB Asia on tightening Group II supply.
In the Group III segment, prices were assessed higher due to snug availability and fresh demand. The 4 centiStoke was up by $20/t at $1,410-$1,450/t and the 6 cSt was also higher by $20/t at $1,420/t-$1,460/t. The 8 cSt grade inched up by $20/t as well to $1,350-1,390/t, FOB Asia for fully approved product.
Upstream, crude oil futures had been on an upward trend, but fell on Wednesday and extended losses on Thursday on expectations of more supply coming to the market. A compromise agreement between leading OPEC+ producers Saudi Arabia and the United Arab Emirates was anticipated to bring more crude to the market. Futures also came under pressure from a surprising drop in U.S. fuel demand. However, analysts also said that global consumption of crude may surpass OPEC+’s supply growth as markets continue to recover.
On July 15, Brent September futures were trading at $73.99 per barrel on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures for August settled at $71.92/bbl on the CME on July 14, from $72.57/bbl on July 9 (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.