The collapse of crude oil prices, which partly reverted course in recent days on hopes that the main oil producers would agree to an output cut, was seen as one of the main factors contributing to the recent base oil price decreases.

While both West Texas Intermediate and Brent futures fell to their lowest levels in 18 years earlier this month, they have recovered some territory on hopes that the OPEC and its allies, including Russia, would agree to production cuts to shore up prices during a virtual meeting on Thursday.

There were expectations that Russia would be willing to reduce its output by 1.6 million barrels per day, but only if the United States agreed to cut production as well. The energy ministers from the G20 were scheduled to meet following the OPEC+ gathering.

In early trading on Thursday morning, Brent June futures were hovering at $33.40 per barrel on the London-based ICE Futures Europe exchange, from $27.35/bbl on April 2. Numbers were significantly down from levels near $50/bbl during the first week of March. 

However, most market players agreed that it was the downturn in base oil demand that was placing an inordinate amount of downward pressure on pricing. With a large portion of the world’s population on some type of lockdown, driving and the use of public means of transportation has plummeted, leading to a sharp decrease in gasoline, diesel, gasoil and jet fuel consumption – with some experts estimating that gasoline demand had fallen by 50 percent in late March compared to earlier in the year.

As might be expected, automotive and industrial lubricant demand has also declined, leading to a significant reduction in base oil requirements.

The demand slump for transportation fuels has forced many refiners to throttle back refinery run rates. Likewise, base oil production units were heard to be running at reduced rates throughout Asia.

Producers acknowledged that the situation was difficult as the lack of storage prevented them from producing extra supply, but at the same time, they did not want to stop production altogether as there might be a pick-up in demand once the lockdowns were lifted, and general activity resumed, and they needed to be prepared for this uptick.

In China, the first glimpses of a slow return to normalcy, as it were, have surfaced as strict travel restrictions started to be lifted in Wuhan, Hubei province, given an apparent containment of the virus outbreak there.

A number of Chinese base oil plants that had temporarily shut down, or had slashed operating rates since January, were heard to be restarting or increasing production.

In Taiwan, Formosa Petrochemical was understood to have postponed a routine turnaround, which was scheduled for its API Group II plant in Mailiao in March, to July.

South Korean producers were heard to be on the lookout for opportunities to place product outside of China, as demand there had crashed during the peak of the outbreak, but there were few takers in other regions. A couple of cargoes were heard to have been sold to the Middle East.

A Middle East refiner, Abu Dhabi National Oil Co., was understood to be postponing the restart of its Group II/III base oil unit in Ruwais, United Arab Emirates, which is undergoing a turnaround and catalyst change that started on March 8. Although the facilities were originally scheduled to be restarted at the end of April, the restart date may now be postponed until May.

Adnoc’s residue fluid catalytic cracker in Ruwais has also been offline since late February because of technical problems.

Adnoc had built base oil inventories ahead of the turnaround and was able to meet contractual obligations, sources familiar with the producer’s operations said. Additionally, China is a large importer of Adnoc’s base oils and the plant outage coincided with the downturn in Chinese base oil demand.

There were reports that shipments of base oils originating in Taiwan, South Korea, Singapore and the Middle East, which had either been postponed or cancelled, had resumed and were expected to be delivered at different Chinese ports in the coming weeks.

Meanwhile, trading in most of the region has come to a standstill, with some discussions going on, but participants appearing reticent to reveal the price levels under consideration as demand estimates and other factors were very much up in the air. “No one seems to know what price to ask for,” a market source commented.

Most spot price ranges were notionally assessed down by $20-$30 per metric ton last week to reflect discussions, together with a Singapore-based refiner’s decreases and the general downward pressure affecting values. A number of ranges were adjusted this week to bring prices more in line with published prices widely accepted as market benchmarks.

Ex-tank Singapore Group I prices for the solvent neutral 150 grade was assessed down by $30/t at $610/t-$630/t, and the SN500 was also down by $30/t at $660/t-$680/t. Bright stock was revised down by $40/t to $770/t-$800/t, all ex-tank Singapore.

The Group II 150 neutral and 500N were adjusted down by $30/t to $640/t-$650/t and $650/t-$670/t, respectively, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was gauged at $530/t-$550/t, and the SN500 was assessed down by $10/t at the low end of the spread to $500/t-$530/t. Bright stock was revised down by $20/t to $640/t-$660/t, FOB Asia.

Group II 150N was heard at $520/t-$540/t FOB Asia, while the 500N and 600N cuts were near $560/t-$580/t, FOB Asia.

In the Group III segment, the 4 centiStoke was mentioned at $720-$760/t and the 6cSt was holding at $740/t-$770/t. The 8 cSt grade was assessed at $700-720/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.