The downward price trend observed in Asian base oil markets persisted, but the reductions were more moderate than in the previous week, as some segments seemed to be leaning towards better balanced conditions. Buyers’ price ideas have been adjusted down given improved availability and lower crude oil prices, while suppliers have acquiesced to the pressure and revised price expectations to more realistic levels.
A number of suppliers were eager to find a home for their products before prices fell further, and some of them simply lacked storage space to keep the extra barrels. However, many lamented the difficulty in shipping product out due to logistical issues brought about by adverse weather, along with fresh lockdowns, port congestion, a lack of container and vessel space, and skyrocketing freight rates caused by the coronavirus pandemic and the flare-up of infections from the Delta variant in many countries.
The API Group I segment has seen an additional influx of product because of the restart of plants in Japan and high production rates in Southeast Asia, while Chinese buyers, who make up a large part of the buying circle for Group I grades, were increasingly relying on domestic output to meet product needs. Prices for Group I grades, which had shot up in the first half of the year, have dropped quite sharply as a result.
Chinese and Indian importers and end-users had been actively seeking barrels of base oils in the region when Group I parcels were difficult to find a few months ago, but had sometimes encountered stiff competition at the hands of Southeast Asian buyers.
The situation has changed and given that more material has entered the system, Chinese buyers were able to acquire base stocks at levels that were more in line with domestic pricing and were often quite lower. This was the case of Group I bright stock, which carried a steep premium within the China domestic market due to a dearth in supplies. Bright stock continues to be widely used in industrial and marine oil applications.
Given softer regional pricing, Asian producers have been able to take advantage of arbitrage opportunities into Europe and the Americas. This has had the added benefit of keeping oversupply at bay in Asia and helped stall the freefall of spot prices for some of the grades. Group I cargoes were heard to have been finalized into various ports in the Americas and Europe, where numbers were still hovering at higher levels. Chinese cargoes had even been offered to South American buyers.
Group II availability was deemed tighter than Group I supply, particularly as far as the heavy grades were concerned. Nevertheless, buyers seemed to be more inclined to wait and see whether prices would soften, even if that meant the risk of not being able to secure product, than to pay current prices. The widespread sentiment was that prices had not reached their bottom yet, and consumers preferred to wait for further adjustments. This was particularly evident in India, where demand has slowed down compared to the first half of the year. Uncertainties related to the pandemic and economic well-being of the country were also impacting fuels and lubricants consumption.
Additionally, domestic producers in India were heard to have reduced prices to encourage sales, and have been relatively successful at placing light grades in the local market. Buyers appeared to be drawing most supplies through term agreements and awaited the arrival of South Korean and Middle East cargoes, which were concluded in the previous weeks. Several parcels of light-vis grades were also secured in the U.S., which had been unable to offer much export supply until about a month ago due to extremely tight conditions there.
The Group II segment was partly more strained than other sectors in Asia because of the ongoing turnaround at Formosa Petrochemical’s plant in Mailiao, Taiwan. The producer embarked on a turnaround in July and was anticipated to restart operations this week. The unit has capacity to produce 600,000 metric tons per year of Group II grades (according to Lubes’n’Greases’ Guide to Global Base Oil Refining) and typically supplies base oils to the domestic market, plus China, India and other destinations as well.
Export shipments from the Taiwanese plant were dramatically reduced during the outage, but there were indications that the supplier was already offering volumes for the coming weeks. The question was whether shipments to China would resume without a hitch as there have been port closures in that country, prompted by a resurgence in COVID cases. However, ports were expected to return to normal operations as China had brought COVID cases back under control and was relaxing restrictions after a month of stringent curbs on the population’s mobility.
The growing utilization of Group III base oils in automotive lubricants to allow OEMs to attain specific emission controls and fuel economy parameters has led to a tighter Group III segment in Asia. Strong demand and higher prices in other regions such as the U.S. also led to Middle East cargoes being attracted to those destinations instead of Asia. Recent turnarounds at two Middle East plants seemed to contribute to the tighter conditions, as fewer cargoes had moved from there to Asia, but production was heard to be ramping up. A Middle East plant was also rumored to be experiencing some production hiccups, limiting export availability. The producer may be moving forward its maintenance turnaround scheduled for next year if the issues persist, according to sources.
Spot prices in Asia were steady to soft this week, depending on bids and offers and whether suppliers were anxious to part with their cargoes. 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 lower as supply has improved and demand slowed down. The Group I solvent neutral 150 grade was down by $20/t at $870/t-$900/t, and the SN500 dropped by $80/t to $1,290/t-$1,330/t. Bright stock was lower by $80/t as well at $1,680/t-$1,720/t, all ex-tank Singapore.
Prices for the Group II 150 neutral decreased by $20/t to $890/t-$930/t, and the 500N also moved down by $20/t to $1,380/t-$1,420/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was adjusted down by $20/t to $740/t-$780/t, but the SN500 fell by $50/t to $1,200/t-$1,240/t. Bright stock also slipped by $50/t to $1,530/t-1,570/t, FOB Asia.
Group II 150N slid by $20/t to $750/t-$790/t FOB Asia, and the 500N and 600N cuts were down by $30/t at $1,220/t-$1,260/t, FOB Asia.
In the Group III segment, prices were stable, buoyed by tight conditions. The 4 centiStoke was holding at $1,420-$1,460/t and the 6 cSt was steady at $1,430/t-$1,470/t. The 8 cSt grade was unchanged at $1,360-1,400/t, FOB Asia for fully approved product.
Upstream, crude oil futures extended gains for a third session on Wednesday, after reversing the downward trend of the previous two weeks. Numbers were supported by an oil rig outage in Mexico and the full approval in the U.S. of the Pfizer-BioNTech COVID-19 vaccine. U.S. inventories of crude oil and gasoline both declined more than expected last week, according to data released Wednesday by the Energy Information Administration.
On Aug. 26, Brent October futures were trading at $71.53 per barrel on the London-based ICE Futures Europe exchange, from $66.13/bbl on Aug. 19.
Dubai front month crude oil (Platts) financial futures for September settled at $69.29/bbl on the CME on Aug. 25, from $66.08/bbl on Aug. 18 (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.