Dark clouds appeared on the base oil horizon as new coronavirus-related lockdowns and travel bans were reimposed in several countries. Despite these prospects, base oil supply was anticipated to remain tight on lingering refinery rate reductions and steady demand from a number of downstream segments.
The fresh lockdowns and travel restrictions in China ahead of the Lunar New Year celebration were linked to a surge in infections in a Northeastern province. About 22 million people were told to remain home in several cities, and travel during the busy holiday was strongly discouraged in the whole country, which could lead to significant drops in transportation fuel and lubricants consumption. This comes at a time when Chinese buyers typically scour the market in search of cargoes to build inventories ahead of the busy spring lubricant production season. However, a reduction in mobility and possibly manufacturing operations, coupled with a lack of availability, may result in lower than expected buying activity.
Lockdowns have already been implemented in Europe and the United States as a highly contagious strain of the virus was making its rounds among the population and the number of infections soared. Japan also issued a second state of emergency, requiring restaurants and other businesses to have restricted hours and banning foreigners from entering the country because the new strain was found within the country’s borders, with the measures expected to be in place until Feb. 7.
Asian base oil demand from the industrial, agricultural and automotive segments remained fairly healthy, but if further restrictions were to be imposed, even these segments could be deeply affected. Consumption had plummeted during the first round of lockdowns at the end of the first quarter of 2020, and suppliers were concerned about a similar effect of the newly imposed measures.
Meanwhile, availability of spot cargoes was described as tight, given that requirements in India and Southeast Asia remained robust, while a majority of producers were focusing on meeting contractual obligations and had little product left for spot business. “We don’t have availability for spot deals due to the fulfillment of long-term contract volumes in January and February,” a supplier source admitted, adding that the tight market conditions had resulted in sharp increases of base oil prices in India, Southeast Asia and China. Chinese buyers were particularly interested in sourcing imported heavy viscosity grades and bright stock. At the same time, appetite for domestic parcels seemed to have weakened in China.
Buyers in different countries were all vying for the same barrels of base stocks from a small number of suppliers, leading to ever-increasing spot price indications.
Indian buyers have also been concerned about being able to secure sufficient material to cover demand and pad inventories ahead of the end of the fiscal year on March 31. They have tried to snap up cargoes as soon as they come to the market from origins such as the U.S., the Middle East, South Korea, and Southeast Asia. It was heard that approximately 20,000 metric tons of light grades were expected to load in the U.S. for India this week.
Indian buyers have faced strong competition from blenders in Singapore, for instance, as they enjoy the advantage of proximity and lower freight costs from certain sources like Thailand. The supply situation in India was further complicated by the extended shutdown at one of the domestic producer’s plant, which was not expected to be restarted until the end of the month. Domestic producers were understood to have raised January prices across the board.
Turnarounds at a number of API Group I and Group II base oil plants in Asia during the third and fourth quarters of 2020 had already left a supply vacuum, and a number of refiners have also dialed back run rates due to the slump in the consumption of fuels and other refined products.
At least a couple of Asian producers were planning turnarounds in the first quarter of 2021 as well, potentially leading to further shortages. There was little relief in sight, as other regions such as Europe and the U.S. also lacked extra availability for spot business, and producers there and in the Middle East were also planning plant turnarounds in the first quarter. Sources said that they expected the market to remain tight until at least June.
Spot prices were on the move once again, spurred by the supply tightness and rising production costs. The heavy viscosity grades underwent steeper adjustments. The ranges portrayed below have also been revised to reflect published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were up on higher buy and sell indications. The Group I solvent neutral 150 grade was up by $10 per metric ton at $740/t-$780/t. The SN500 jumped by $30/t to $930/t-$970/t and bright stock also shot up by $30/t to $1,010/t-$1,050/t, all ex-tank Singapore this week.
The Group II 150 neutral was assessed up by $20/t at $800/t-$840/t, and the 500N was adjusted up by $10/t to $930/t-$960/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed up by $10/t to $660/t-$690/t, and the SN500 jumped by $50/t to $860/t-$900/t. Bright stock was also higher by $50/t at $960/t-1,000/t, FOB Asia.
Group II 150N was up by $10/t at $680/t-$720/t FOB Asia, while the 500N and 600N cuts moved up by $40/t to $820/t-$860/t, FOB Asia.
In the Group III segment, the 4 centiStoke was assessed up by $20/t at $880-$920/t and the 6 cSt was also up by $20/t at $900/t-$940/t. The 8 cSt grade edged up by $30/t to $830-870/t, FOB Asia for fully approved product.
Rising crude oil and feedstock prices have also placed additional upward pressure on base oil price indications. Crude oil futures had jumped on news about a significant supply cut by Saudi Arabia and crude drawdowns in the U.S. last week, but numbers slipped on Thursday as positive prospects of increased Chinese oil imports were outweighed by surging coronavirus cases in Europe and new lockdowns in China.
On Thursday, Jan. 14, Brent March futures were trading at $55.98 per barrel, from $54.42/bbl on Jan. 7 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures settled at $55.27/bbl on the CME on Jan. 13, from $53.58/bbl on Jan. 6 (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.