Base oil prices were mixed in Asia this week, as some grades moved up, some stayed unchanged and others lost ground because each group was impacted by different factors. Demand has held at higher levels than anticipated, and this kept some spot prices from deteriorating, even though supply levels have grown over the past few weeks.
The light-viscosity base oils continued to enjoy plenty of attention as many lubricant formulations require the lighter grades when the cold temperatures set in, in detriment to the heavy-vis grades, which have shown a drop in demand and more significant downward price adjustments. There was also plenty of demand in countries such as India, where diesel prices remained at steep levels.
The base oil cut that has shown the most noticeable metamorphosis is the API Group I bright stock. This grade has turned from the belle of the ball to dragon in the dungeon, as requirements have softened and prices have plummeted from the much loftier levels seen during the first half of the year – although prices are still comparatively high. Spot price indications on an FOB basis for bright stock hovered at $1,840-$1,880 per metric ton last May, and have steadily moved down to reach $1,210/t-1,250/t this week. While there is still demand for bright stock, increased availability and a seasonal slowdown have combined to place downward pressure on spot pricing, and buyers were not as anxious to find sources of this cut as they were in the first part of the year.
Group I production rates have remained steady over the last three months, and Japanese plants operated by Eneos have also by and large completed maintenance shutdowns. It was also heard that Eneos was planning to shutter its plant in Negishi, Japan, some time in 2022 in response to a decline in refined products in that country. The plant has a capacity of 229,000 metric tons per year of Group I base oils, according to Lubes’n’Greases Base Stock Plant Data.
While buying interest for Group I grades had dipped during August and September, it seemed that buyers have returned to the market after holding off on purchases as long as possible on expectations that prices would decline. They were now back, hoping to secure cargoes through the end of the year, and availability from Southeast Asia was heard to be by and large sold out for the month. Japanese exports were also heard to be proceeding as expected.
The Group II segment showed similar tendencies as the Group I sector, with the light grades seeing slight upward price pressure, and the heavy grades edging down. Availability in general was heard to be plentiful, although the delayed restart of the Taiwanese producer’s plant following a turnaround resulted in tight supplies in China, who had counted on receiving shipments after the scheduled restart in August. However, since Formosa Petrochemical‘s plant in Mailiao, Taiwan, suffered a setback on restart due to a small fire, production did not resume until late September, and this disrupted the Chinese importers’ plans.
Additionally, it was heard that some of Formosa’s export availability had made its way to other destinations rather than China as Chinese buying interest had cooled by the time the plant had restarted. Some Taiwanese cargoes were shipped to the United States in September and were expected to then make their way to Mexico.
The Group III segment displayed the relatively steady conditions, but small price fluctuations were observed week on week, depending on availability and buying interest. South Korean supply was deemed stable and many surplus cargoes were absorbed by the U.S. market, where demand remained firm and availability tight.
One common thread among all the base oil segments was the logistical issues that have affected not only countries in Asia, but businesses around the world. Some of these issues were related to port congestion and a lack of containers and vessel space, which derived from earlier COVID-19 restrictions and labor shortages. Supply chain disruptions due to a lack of components such as computer chips and raw materials such as additives were affecting worldwide manufacturing operations. Some of these disruptions have impacted lubricant consumption, for example, in the marine and industrial segments. Some blenders have faced difficulties in being able to produce enough product to meet demand, sources noted.
Some of these issues have been evident in China and India, where energy shortages were compounding the problems. Chinese port congestion continued, although some of the vessels have been able to discharge, but many base oil suppliers were hesitant to conclude business into China due to the uncertainties with shipment logistics. Chinese demand for diesel has also increased as other energy sources have been in short supply, and this has led to higher diesel prices. Some refiners were favoring diesel production over other refined products such as base oils.
Similarly, in India, diesel prices have jumped and demand has remained healthy. This remained a factor for refiners, who had to decide how to plan their refining process and which products to favor. Base oil consumption in India was equally healthy, particularly as lubricant demand remained strong ahead of the traditional festival season. Base oil sellers were now hoping to attain higher values since crude oil prices have strengthened. Several U.S. Group II light-viscosity grade cargoes were also expected to arrive in India in coming weeks.
As mentioned above, spot base oil prices were mixed this week, with some indications edging up, others falling and a few remaining unchanged. The spot 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 slightly up by $10/t at $830/t-$860/t, and the SN500 was holding at $1,060/t-$1,110/t. Bright stock edged down by $10/t to $1,350/t-$1,390/t, all ex-tank Singapore.
Prices for the Group II 150 neutral moved up by $30/t to $870/t-$910/t, while the 500N was unchanged at $1,300/t-$1,340/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 edged up by $20/t to $700/t-$740/t, but the SN500 slipped by $20/t to $900/t-$940/t. Bright stock fell by $40/t this week to $1,210/t-1,250/t, FOB Asia.
Group II 150N was assessed higher by $20/t at $730/t-$780/t FOB Asia, and the 500N and 600N cuts dipped by $10/t to $1,090/t-$1,130/t, FOB Asia.
In the Group III segment, prices were also mixed, with lengthening supply of the 8cSt grade driving prices down. The 4 centiStoke went up by $10/t to $1,430-$1,470/t and the 6 cSt also edged up by $10/t to $1,440/t-$1,480/t. The 8 cSt grade was assessed lower by $20/t at $1,320-1,360/t, FOB Asia, all for fully approved product.
Crude oil has trended upwards over the past several weeks, lending the base oils segment bullish price sentiment. Crude futures hit three-year highs on Thursday on expectations of a global energy crunch and ongoing crude oil tightness. A supply report from the U.S. Energy Information showed crude and fuel inventories had fallen, providing further support to prices. However, numbers dipped later on Thursday as some investors preferred to draw in profits as the rally seemed to be running out of steam.
On Oct. 21, Brent December futures were trading at $84.78 per barrel on the London-based ICE Futures Europe exchange, from $84.20/bbl on Oct. 14.
Dubai front month crude oil (Platts) financial futures for November settled at $82.76/bbl on the CME on Oct. 20, from $80.10/bbl on Oct. 13 (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.