Just when market players thought that things could not get any worse, and there was actually hope that the spread of the coronavirus had slowed down in Asia, the outbreak started to spin out of control in other regions.
European countries such as Italy, where the virus has claimed the highest number of deaths after China, have implemented lockdowns on cities and whole regions, and travel bans between different nations have also been deterring the movement of people and goods.
With mass quarantines also imposed in many areas, the use of public transportation and private cars has dropped, resulting in reduced demand for fuels and lubricants.
The general market situation was steeped in uncertainty, with stocks crashing early this week to their lowest since the 2008 financial crisis, and economic growth prospects heavily downgraded for a majority of countries due to the effects of the coronavirus (or Covid-19) on the global outlook. The deadly virus has already impacted China’s predicted first-quarter growth rates, and was expected to thrash that of other countries as well.
To add fuel to the fire, Russia and Saudi Arabia embarked on a crude oil price war after failing to reach an agreement on future production cuts at an OPEC+ meeting in Vienna last week.
Russia refused to commit to a proposed production curb, and Saudi Arabia decided to flood the market with crude oil in an effort to recapture market share. Crude oil prices crashed by over 30 percent on Monday, registering the largest one-day drop since 1991, and have fallen by about 50 percent since mid-January.
Oil prices recovered slightly on Thursday as markets digested the crash of earlier in the week, and countries implemented stimulus packages to counter the effects of the Covid-19 pandemic.
On Thursday, March 12, Brent May futures were trading at $33.45 per barrel on the London-based ICE Futures Europe exchange, compared to $51.51/bbl on March 5.
While lower crude oil prices typically lead to higher demand as consumers feel encouraged to drive more, given the current situation where millions of people are discouraged from leaving home and businesses have cut operating hours, gasoline consumption, and by default, oil demand, was expected to crumble.
The International Energy Agency (IEA) is now predicting a contraction in global oil demand, with 2020 consumption expected to see a 90,000 barrels per day decline compared to 2019, from a previous forecast of an 825,000 barrel a day increase, MarketWatch.com reported.
Most petrochemical trading ground to a halt this week as participants expected steep price reductions on the back of tumbling fundamentals, but were unsure of when the bottom of the market would be reached.
Buyers were not ready to commit to cargoes as they expected prices to see adjustments in the next couple of weeks. Only those that seemed to be in immediate need of product were heard to be in discussions for prompt shipments.
At the same time, slowly improving conditions were noted in China, with manufacturing facilities resuming production, and base oil plants also ramping up rates, or restarting activities as the number of new infections declined.
Still, the effects of the outbreak are not going to be wiped out overnight, sources said, with many industrial segments suffering setbacks that may not be easy to recover from.
One of these segments is the automotive industry, given that not only vehicle production decreased since the start of the year, but car purchases have also plummeted.
China’s vehicle sales fell by 80 percent in February, the China Passenger Car Association reported last week. One of the automotive manufacturers that has been affected, Japanese auto-maker Nissan, reported that the impact of the coronavirus had caused its car sales to drop by 80 percent last month as car shops were shut by the coronavirus outbreak, according to an article in Automotive News.com.
In Taiwan, Formosa Petrochemical Corp. was heard to have decreased the domestic list prices for its Group II base oils. The decreases apply to March shipments. Formosa’s Group II 70 neutral grade was marked down by New Taiwan Dollars (NT$) 0.56 per liter and its 150N grade by NT$0.51 per liter. The producer’s 500N was adjusted down by NT$0.25 per liter.
Likewise, domestic prices in China were heard to have been reduced on tumbling crude oil prices and the novel coronavirus impact on base oil and lubricants demand.
All the current turmoil and the ever-changing market landscape have resulted in static spot prices this week as participants sought price direction. Some of the ranges were notionally revised down last week to reflect weaker fundamentals, but price confirmations were difficult to obtain this week due to the dearth of transactions and absence of participants.
Ex-tank Singapore Group I prices for the solvent neutral 150 grade were assessed at $650/t-$670/t, and the SN500 was at $700/t-$720/t. Bright stock was unchanged at $810/t-$830/t, all ex-tank Singapore.
The Group II 150 neutral and 500N were heard at $710/t-$730/t and $720/t-$740/t, respectively, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was holding at $530/t-$550/t, and the SN500 grade was steady at $540/t-$550/t. Bright stock was hovering at $690/t-$710/t, FOB Asia.
Group II 150N was assessed steady at $550/t-$570/t FOB Asia, while the 500N and 600N cuts were unchanged at $580/t-$600/t, FOB Asia.
In the Group III segment, the 4 centiStoke was hovering at $750-$780/t and the 6cSt was heard at $760/t-$790/t. The 8 cSt grade was adjusted up by $10/t to bring the range more in line with current market values and was not reflecting suppliers’ increases at $720-740/t, FOB Asia for fully approved product.
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.