Base oil participants agreed it was challenging to predict short-term demand levels, as the market situation remained fluid and swayed by developments related to the COVID-19 pandemic, which has upended most sectors of the industry.
Early indications that the spread of the disease was controlled in several countries started to emerge in May, leading to a reopening of manufacturing operations and businesses in most of these nations. As a result, base oil and lubricant producers and consumers saw an uptick in demand, with several countries in Asia displaying the highest activity levels in months. China actually reopened much sooner because the pandemic originated there earlier than in the rest of the world.
However, the global increase in coronavirus cases and a resurgence in many countries that had originally shown promising prospects in terms of controlling the pandemic might lead once again to lockdowns, business closings, a reduced use of transportation and a potential slump in fuel and lubricant consumption.
Some of these signs were apparent in India, where base oil buyers appeared to come out in droves last month to secure fresh cargoes as inventories depleted during the previous months, but have now adopted a more cautious attitude.
India attracted lots of imports in June, with South Korean producers heard to have shipped a record number of volumes. Several parcels were also shipped from the United States that month, and were expected to arrive in India in late July and early August.
Whether the momentum could be sustained was not clear, as base oil requirements seemed to be slowing, given that buyers have replenished stocks, the country continues to be afflicted by coronavirus-related problems and suppliers have increased offer prices.
U.S. supply has also tightened due to export opportunities and domestic demand, so fewer cargoes were said to be available for August lifting.
Still, there were reports of approximately 50,000 tons of U.S. base oils intended for India, and a few of these have not been concluded yet. Shipping inquiries to move around 30,000 tons of base oils from the U.S. to Indian ports in August surfaced last week, but several cargoes were still available, according to sources. Demand in India may pick up in September and October ahead of seasonal festivals, but buyers seemed to have turned hesitant about securing additional cargoes.
India has also been receiving shipments from the Middle East and South Korea, many of which were expected to arrive this week and in early August. There have not been recent spot shipments of Taiwanese product due to an ongoing shutdown at Formosa Petrochemical‘s API Group II plant in Mai-Liao, but availability should improve once the producer resumes operations in mid-August, if the turnaround proceeds as planned.
As a result of all this availability from the U.S., South Korea and the Middle East, plus expectations of potential lockdowns and a slump in demand, Indian buyers appeared less inclined to accept higher offer levels for upcoming shipments. Furthermore, term cargoes were priced below spot offers, so many buyers were content to work with existing stocks and volumes acquired under contract, or were waiting to receive shipments that they had already secured in June.
Group II base oil prices in India increased by about $20-40/t over the last two weeks and were heard hovering at around $530-570/t CFR India for 150N and $580-620/t CFR for 500N. However, it appears that the rapid upward price movement may have slowed.
Availability of Group I grades was deemed sufficient to cover Indian requirements at the moment, given plentiful domestic supplies, even as European cargoes have dwindled because of product tightness in that region. Prices were generally reported as steady. There was talk about a Group I cargo possibly moving from the U.S. in August, but no details were forthcoming, while shipments from Iran have all but dried up in recent months.
Group I base oils were also snug in China, as manufacturing operations have ramped up and there was more limited domestic supply given recent plant shutdowns and reduced production rates. Prices of heavy-viscosity grades and bright stock were exposed to upward pressure, with offers for Thai material for August shipment heard at a premium to July values.
At the same time, there was also healthy buying interest for Group I cargoes in Southeast Asia, with several Japanese cargoes concluded in recent weeks and expected to arrive this week and in the first half of August.
Spot prices in Asia were stable to firm this week, with values for a number of cuts – namely the heavy-viscosity grades – edging up on account of tightening availability and keen demand.
Ex-tank Singapore assessments for the Group I solvent neutral 150 grade were unchanged at $490/t-$530/t this week, while the SN500 was assessed higher by $10/t at $560/t-$590/t. Bright stock was unchanged at $665/t-$695/t, all ex-tank Singapore.
The Group II 150 neutral was stable at $500/t-$520/t, but the 500N was revised up by $20/t at $640/t-$670/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was hovering at $420/t-$440/t, and the SN500 moved up by $20/t to $460/t-$500/t. Bright stock was also assessed higher by $20/t at $560/t-590/t, FOB Asia.
Group II 150N was steady at $440/t-$470/t FOB Asia, while the 500N and 600N cuts were steady at $520/t-$560/t, FOB Asia.
In the Group III segment, the 4 centiStoke was assessed at $680-$720/t and the 6cSt at $690/t-$730/t. The 8 cSt grade was unchanged at $670-$690/t, FOB Asia for fully approved product, although trading remained thin.
Upstream, crude oil futures rose in early trading on Thursday on the back of a U.S. Energy Information Administration report that showed U.S. crude oil inventories had dropped by 10.6 million barrels in the week ended July 24. This compares with a build of 4.9 million barrels for the previous week. However, inventories remain 17 percent above the five-year seasonal average, OilPrice.com reported.
Futures edged down later in the day as prospects for global crude oil demand remained lackluster on account of the pandemic. Reuters reported that Saudi Arabia may cut its September official selling price (OSP) for crude sold in Asia, tracking falling Middle East benchmarks and weak refining margins.
On Thursday, July 30, Brent September futures were trading at $43.40 per barrel on the London-based ICE Futures Europe exchange, from $43.30/bbl on July 23.