There appeared to be a flurry of activity as buyers tried to secure cargoes and sellers assessed stock levels, with operations at some refineries still kept below full rates given oversupplied fuel markets. A couple turnarounds limited spot availability in Asia.
The segment that seemed to tighten the most was the API Group I sector, given that new capacity for this category has not grown over the last few years – with the exception perhaps of the expansion at Karamay Petrochemical’s plant in China last year – and demand for Group I grades for the most part held its ground during the pandemic.
Industry insiders said that given the ongoing need to manufacture essential goods and pandemic-related equipment, industrial activity continued throughout the year, despite a few hiccups and has actually picked up, in particular in China, requiring more industrial lubricants and calling for greater volumes of Group I base oils.
Another segment that has been fairly active is the freight transportation sector, as imports and exports within the region and into deep-sea markets heightened the need for marine and heavy-duty lubricants.
Furthermore, weaker fuel margins prompted some refiners to keep operating rates below full capacity, resulting in reduced feedstock availability for base oil production.
Imminent turnarounds at a couple of Japanese Group I base oil plants were also expected to affect these grades’ availability, although suppliers prepared inventories to meet term requirements. Cosmo Oil’s Group I plant in Yokkaichi and one of Eneos’ (formerly JXTG Nippon Oil’s) Group I plants in Mizushima were heard to have slated turnarounds in the fourth quarter, although further details could not be confirmed. Japanese producers typically export Group I cargoes to different destinations within Asia.
One of the key consumers of Group I base oils is India as well, and the country used to be able to source Group I barrels from Iran. However, these shipments have dried up due to ongoing international sanctions on Iranian oil exports amid other financial deterrents.
European supply of Group I was also reported to be very limited, thwarting opportunities to find extra barrels for spot shipment to Asia.
While the Group I segment was expected to be tight in the next few weeks, observers also warned that the base oil market was approaching the last quarter of the year, when demand typically weakens and both buyers and sellers try to reduce inventories.
This appeared somewhat evident in China, where buying appetite for imports has abated, and domestic supply of Group I and II base stocks appeared to be more than adequate to meet current demand levels.
In the Group II segment, unexpected base oil output outages and reduced operating rates in the United States caused by hurricanes and tropical storms meant that there was less spot availability to meet demand in India and other countries in Asia.
Significant amounts of Group II base stocks were exported from the U.S. between June and August, but given the production shutdowns and steady domestic demand, a few suppliers have had to suspend spot offers to ensure the fulfillment of contractual obligations. A couple of cargoes were heard to be moving from the U.S. to India in October, but the amount was small, compared to shipments in previous months.
A recent turnaround at Formosa Petrochemical’s Group II plant in Mai-Liao, Taiwan, together with an ongoing maintenance program at S-Oil’s plant in Onsan, South Korea, have also reduced spot availability within Asia.
S-Oil started a planned maintenance program at its Group I, II and III complex at the end of August that was expected to last until mid-September. During the shutdown, which only affected Group I and II production, the producer was able to meet term commitments as it had built inventories ahead of the turnaround.
Reports also indicated that volumes moving from the Middle East into Asia have decreased, given output reductions and the need to cover demand within the Middle East region itself and in the U.S.
As a result of the tighter conditions and firm feedstock prices, Group II price indications have crept up over the last several weeks. Values for the heavy-viscosity grades and bright stock within the Group I category have also risen given limited availability.
Prices in India remained exposed to upward pressure as buyers scrambled to secure cargoes on signs that extra barrels were scarce within Asia. A few importers have turned to Middle East suppliers, but availability in that region has also dried up ahead of a turnaround and steady demand within that region.
Despite scant spot availability in the U.S., there were reports that a couple of Group II base oil cargoes totaling around 23,000 metric tons were scheduled to load on the U.S. Gulf Coast for India in October.
There is plentiful regional supply of Group III at the moment, and these grades experienced comparatively little fluctuation over the last several months, but there has been an uptick in buying interest and this was reflected in firming offer levels.
Since Group III base oils are, to a large extent, mostly used in automotive lubricant applications, and this segment had suffered a dramatic slowdown due to the pandemic. Prices of Group III cuts had actually slipped in Q2, and only regained territory as activity picked up over the summer, and crude oil and feedstock prices strengthened.
Spot base oil prices in Asia were steady to firm again this week, propelled by supply and demand fundamentals, rather than changes on the feedstock side. Some of the price indications were also adjusted up to reflect published ranges widely regarded as benchmarks for the region.
Ex-tank Singapore assessments for the Group I solvent neutral 150 grade were unchanged at $490/t-$530/t. The SN500 was holding at $585/t-$630/t. Bright stock was firm at $685/t-$720/t, all ex-tank Singapore this week. These assessments had seen moderate increases the previous week.
Meanwhile, the Group II 150 neutral edged up by $10/t to $510/t-$540/t, and the 500N was heard at $660/t-$690/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 moved up by $10/t at the top end of the range to $420/t-$450/t, and the SN500 also edged up by $10/t to $510/t-$550/t. Bright stock was adjusted up by $10/t to $610/t-650/t, FOB Asia.
Group II 150N was revised up by $10/t to $470/t-$500/t FOB Asia, while the 500N and 600N cuts were also higher by $10/t at $555/t-$595/t, FOB Asia.
In the Group III segment, the 4 centiStoke was adjusted up by $10/t to $690-$730/t and the 6 cSt edged up by $10/t to $710/t-$750/t. The 8 cSt grade was stable at $670-690/t, FOB Asia for fully approved product.
Upstream, crude oil futures saw a rather choppy session, with prices edging up and then declining amid concerns about future oil demand as economic reports from different parts of the world suggested that any recovery would be slow. News that Libya would be reopening some of its oil export terminals and increasing production also contributed to the downward pressure.
On Thursday, Sept. 24, Brent November futures were trading at $41.43 per barrel on the London-based ICE Futures Europe exchange, from $42.10/bbl on Sept. 17.
Dubai front month crude oil (Platts) financial futures settled at $41.80/bbl on the CME on Sept. 23, from $42.08/bbl on Sept. 16.
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.