More moderate base oil demand, coupled with increased output, continued to exert downward pressure on spot pricing in Asia, although the speed and extent of the decreases slowed down compared to a month ago, when most base oil grades underwent significant drops. Steeper crude oil and feedstock values drove some buyers back into the market, making purchases as a hedge against the possibility of an upturn in base oil prices.
The base oil cuts that experienced the largest decreases were those that had reached sky-high levels in the first half of the year, when strained supply and healthy demand had catapulted prices to historic highs.
One of these grades was API Group I bright stock, which continued to enjoy considerable buying interest, but has become more readily available as Group I plants have returned to full production, following turnarounds and reduced operating rates. The heavy grades within the Group I and Group II segments have also seen pronounced downward price adjustments over the last several weeks for the same reasons. Demand for heavy-viscosity grades also weakens in the winter months as lubricant manufacturers switch to lighter formulations.
Suppliers in Southeast Asia and Japan have been able to offer increased Group I volumes for spot business. However, the relentless rise in freight costs were causing buyers to shy away from some of these offers. A number of available Southeast Asian cargoes have been booked for shipment to India, where demand was fairly steady. While there remained buying interest from China, a lack of vessel space and port congestion due to pandemic-related restrictions was hindering the conclusion of business.
As Group II supply in Europe and the United States has seen some lengthening as well, there were more Group II cargoes available for shipment to Asia. A number of Group II parcels were heard to have been booked for shipment from Spain and the U.S. Gulf to India. U.S. supply levels have improved over the last several weeks after a near absence of shipments for most of the year as export availability had been extremely limited. Indian consumption of light grades was said to be steady, with imports from South Korea and the Middle East meeting many of these requirements as well.
Demand for lubricants has picked up in India as many coronavirus-related restrictions have been lifted and there is more mobility of the population. Base oil buyers also were eager to pad inventories ahead of possible base oil price increases as crude oil and feedstock prices embarked on an upward trek.
The rate of COVID 19 infections has slowed down in India, but experts warned that it could tick up again after the festivals that take place during the last few months of the year. Diwali is celebrated on Nov. 4-8 and it is one of the most celebrated holidays, drawing large crowds and enticing people to travel to their home towns. This holiday is also celebrated in other Southeast Asian countries.
Group II availability in Asia was anticipated to improve with the return to production of Formosa Petrochemical‘s Group II plant in Mailiao, Taiwan.
The extended turnaround at this facility resulted in more limited regional supply since June, as the producer was starting to prepare for a routine maintenance program which was scheduled to start in July and end in late August. However, a small fire at the 600,000 metric tons per year unit when it was almost ready to resume production prolonged the outage. There were reports that the unit was restarted during the week. The outage took out around 30,000-40,000 tons of Group II cargoes from the market as Formosa typically exports these quantities to other countries in the region. The first export shipments from the Taiwan were expected to be shipped to China later this month.
In China, demand remained steady, but increased domestic availability has kept buyers largely away from imports. However, the new rationing of power supply in the country was expected to affect local refinery run rates and potentially lead to decreased base oil output.
The Group III segment remained tight because demand for high performance base oils has increased over the last couple of years as more stringent automotive emission and fuel efficiency standards get implemented in Asian nations. Additionally, while there was a dearth of Group II grades earlier in the year, many consumers switched to blending more Group III cuts whenever possible.
If Group III supply starts to lengthen in Asia, the surplus would be rapidly absorbed in the U.S., sources said. A supplier commented that if its plant were able to produce more base oils, it would likely be all sold out in no time.
Spot prices in Asia were assessed as stable to softer this week, with the Group III segment remaining fairly unchanged. The ranges portrayed below have been revised to reflect bids and offers, deals and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were steady to lower this week. The Group I solvent neutral 150 grade was unchanged at $820/t-$850/t, but the SN500 moved down by $20/t to $1,070/t-$1,120/t. Bright stock plunged by $100/t to $1,380/t-$1,420/t, all ex-tank Singapore.
Prices for the Group II 150 neutral held at $840/t-$880/t, but the 500N was adjusted down by $10/t to $1,310/t-$1,350/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was steady at $680/t-$720/t, but the SN500 was down by $10/t at $930/t-$970/t. Bright stock fell by $50/t this week to $1,260/t-1,300/t, FOB Asia.
Group II 150N was unchanged at $710/t-$750/t FOB Asia, and the 500N and 600N cuts were holding at $1,100/t-$1,140/t, FOB Asia.
In the Group III segment, prices were stable, supported by healthy demand and tight conditions. The 4 centiStoke was hovering at $1,420-$1,460/t and the 6 cSt was steady at $1,430/t-$1,470/t. The 8 cSt grade was holding at $1,340-1,380/t, FOB Asia, all for fully approved product.
Crude oil futures retreated from multi-year highs on Thursday on the back of an unexpected rise in U.S. crude inventories. The recent spikes were caused by expectations that OPEC+ would not allow member countries to increase production and this would result in an energy shortage.
“The price of global benchmark Brent has surged more than 50% this year, adding to inflationary pressure that could slow recovery from the COVID-19 pandemic,” Reuters reported.
On Oct. 7, Brent December futures were trading at $80.03 per barrel on the London-based ICE Futures Europe exchange, from $77.96/bbl for November futures on Sep. 30.
Dubai front month crude oil (Platts) financial futures for November settled at $77.81/bbl on the CME on Oct. 6, from $74.76/bbl on Sep. 29 (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.