This, in turn, resulted in a steep decline in gasoline and diesel demand, prompting most refiners to cut back refinery run rates, given that storage tanks were also close to capacity.

As might be expected, lubricant consumption has dwindled as well – except perhaps in those segments that supply the emergency, medical and food service industries – with base oil producers noting that it was difficult to find buyers as most lubricant manufacturers were trying to use up existing inventories, which were deemed sufficient to meet current downstream demand.

South Korean base oil producers, who regularly supply products to China and India, said that United States base oils had been offered into these markets at very competitive levels amid a global demand reduction.

Traders were looking for other outlets for Korean products and at least a couple of parcels were heard to have been placed with a Middle East buyer. In the meantime, several term cargoes were on their way to India, but buyers were understood to be taking minimum quantities as storage was tight.

Aside from slack demand, financial issues were also a deterrent to the conclusion of business in the region, sources said.

Producers GS-Caltex, SK Lubricants and Hyundai Oilbank-Shell were heard to have trimmed operating rates by at least 10 to 15 percent, although there was talk that the cuts might be much deeper. This could not be confirmed with the producers directly.

S-Oil will continue to run its base oil plant at close to maximum capacity during the month of April, despite the likelihood of surplus volumes due to reduced product orders on a global scale. “But it is difficult to predict the operation ratio in May because global base oil interest continues to decrease due to the spread of Covid-19,” a source familiar with the company’s operations conceded.

A supplier also explained that oil companies have had to implement crisis management initiatives, and this included finding ways of dealing with a lack of storage for surplus material. Shutting down operations was not necessarily the best option, because restarting a refinery can be very time-consuming and complicated. “We have to prepare for the market situation after the virus crisis is over, and we expect there will be a spike in demand. We have to be ready for that,” the supplier said.

In Japan, despite the dramatic slump in crude oil prices, base oil values were heard to be up for the second quarter of the year. This is because prices are calculated using a formula based on a “cocktail” of prices, including the official CFR crude oil price from the previous quarter. According to sources, JXTG Nippon Oil nominated its Q2 price for API Group I 150 at an increase of yen 5.1 per liter to JPY 97.96/liter.

Meanwhile, in China, import price ideas of Group I base oils were heard to have fallen, given the lack of demand for these barrels as local production was deemed plentiful, particularly because many plants have restarted operations after two to three-month shutdowns, which had been caused by the virus outbreak. Nevertheless, a number of Thai bright stock cargoes, which changed hands at much lower levels than a few weeks ago, were heard to be heading for China this month.

Chinese buying interest for Group II cargoes may be captured by very competitive offers for imported barrels of various origin, including South Korea, Singapore, the Middle East and the U.S.

A majority of spot prices in Asia have suffered downward adjustments, although buyers and sellers admitted that it was difficult to determine where price levels rested, as there were almost no transactions amid a lack of firm bids and offers.

Buyers were reluctant to commit to cargoes on concerns that values may slip further in coming days. They pointed out that base oil margins had improved given the sharp drop in crude oil and feedstock values, and that there was room for base oil indications to move down further.

Most spot price ranges portrayed below were notionally adjusted down over the last two weeks to bring prices more in line with discussions, and with published prices widely accepted as market benchmarks.

Ex-tank Singapore Group I prices for the solvent neutral 150 grade were assessed at $610/t-$630/t, and the SN500 was at $660/t-$680/t. Bright stock was heard near $770/t-$800/t, all ex-tank Singapore.

The Group II 150 neutral and 500N were assessed at $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 revised down by $20/t at the low end of the spread to $700-$760/t and the 6cSt was also down by $20/t at the low end at $720/t-$770/t. The 8 cSt grade was assessed at $700-720/t, FOB Asia for fully approved product.

Upstream, crude oil values tumbled to 18-year lows early in the week, despite an agreement by OPEC+ members to cut oil production by 9.7 million barrels per day in May and June, equating to about 10 percent of global supply, to offset the demand destruction from the pandemic.

Futures were down on Thursday morning following a report by the U.S. Energy Information Administration that showed a 19.2 million barrels increase in oil inventories. However, prices rebounded on Thursday afternoon on firm spot demand.

Brent June futures were hovering at $28.33 per barrel on the London-based ICE Futures Europe exchange on April 16, from $33.40/bbl on April 9. By comparison, Brent futures were near $50/bbl during the first week of March. 

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.