Nevertheless, many participants were concerned that the recent trend in base oil demand would not be sustained, given that the coronavirus pandemic was not under control in many areas of the world, and the economic recovery has also been uneven.

Many of the sectors related to services and tourism, such as the aviation industry, continue to suffer and there is little relief in sight as air traffic remains at all-time lows. There were expectations that the situation would not improve until travelers are able to move freely between countries again. The plummeting number of passengers has led to drastic cuts in the number of flights offered by the various airlines, and this has ensued in reduced jet fuel and aviation lubricant demand, not to mention layoffs and bankruptcies.

A number of Southeast Asian economies rely on the tourist industry, and the absence of tourists has led to growing unemployment rates and a drop in demand for all kinds of products, including many petrochemicals and lubricants.

The lower jet fuel and distillates consumption also prompted reductions in run rates at many refineries and in turn, this has affected base oil feedstock production.

Another key downstream market for base oils, the automotive industry, experienced a slight recovery over the last two months as lockdowns were lifted and consumers preferred to buy their own vehicles instead of using public transport, but the recovery has been tenuous, with automotive sales expected to plateau in coming months if renewed lockdowns are imposed.

In India, factory shipments of cars and utility vehicles rebounded in August due to pent-up demand and the onset of the festive season, Bloomberg-Quint reported. Domestic wholesale of passenger vehicles increased 14.16% year-on-year to 215,916 units in August, according to data released by the Society of Indian Automobile Manufacturers. India’s top carmakers were unable to ship a single vehicle to dealers in April as they shut production after Prime Minister Narendra Modi announced the world’s biggest stay-at-home restrictions to stop the coronavirus, but sales gradually improved in subsequent months, the Bloomberg-Quint article said.

China’s auto market also showed marked improvement following the lifting of lockdowns, the government’s implementation of strong stimulus and a robust recovery in demand for commercial vehicles. Sales in China rose 16.4% in July compared with a year earlier to 2.11 million vehicles, according to data from the China Association of Automobile Manufacturers cited in a Marketwatch.com article.

At the same time, manufacturing indices in most of the major economies in the region showed improvement in September compared to the previous month, experts noted. However, this segment remained vulnerable as it depends strongly on product demand from other regions such as Europe and North America, which continued to be plagued by coronavirus-related uncertainties.

This week, the base oil market saw moderate trading in China, South Korea and other countries following national holidays. Despite a return to business, Chinese demand for imports was subdued as domestic production was steady and there was sufficient product to meet current needs. Despite typical slowdowns in the last quarter, base oil demand seemed to be holding steady as blenders prepared inventories ahead of the year-end holidays, so an increased interest in the next couple of weeks was not discarded. The question remained whether numbers would work, as most regional cargoes were offered at higher levels.

In another key market, India, base oil demand was deemed buoyant, but the pandemic was rampant in large parts of the country, and a second wave of lockdowns amid ongoing economic concerns could potentially dampen requirements moving forward.

For the time being, however, healthy demand has led to a gradual increase in base oil prices over the last several weeks. This week, prices were heard to have increased $20-$40 per metric ton from the previous week, with the heftier hikes seen on the heavier grades. The heavy-viscosity Group I cuts have witnessed steep markups as supply remains limited, with few options to source these grades in other regions. A turnaround at an Indian producer’s plant exacerbated the situation.

A tightening Group II supply scenario in the United States, where almost no export cargoes were on hand, and in the Middle East, which can typically ship large volumes to India, have sounded the alarm and sent buyers scrambling for imports wherever they may be available.

Base oil output in the U.S. was curtailed by recent weather-related issues at major plants along the U.S. Gulf Coast. Another tropical storm, Hurricane Delta, was expected to make landfall in the area on Friday, and was forecast to strengthen to a Category 2 hurricane as it battered the southern and central Gulf of Mexico earlier in the week, the U.S. National Hurricane Center said. 

Planned production outages in the Middle East were also heard to have lowered Group II and III availability from that region, although further details about the shutdowns were not forthcoming. Numerous cargoes routinely move to India from UAE-based Abu Dhabi National Oil Co. and Bahrain Petroleum Co., but there were reports of possible curtailments in shipments over the next few weeks.

Thankfully, Taiwanese producer Formosa Petrochemical’s API Group II plant in Mai-Liao was heard to be running well, following its restart after a turnaround, and South Korean producer S-Oil was also expected to ramp up production at its Ulsan Group I and II production trains after the completion of a 40-day turnaround last month. Both China and India typically import large quantities from these sources as well.

Formosa Petrochemical has raised its domestic list prices for October on the back of snug supply and firm feedstock values. The producer’s Group II 70 neutral grade and 150N grades were lifted by New Taiwan Dollars (NT$) 0.30 per liter, while the producer maintained the price of its 500N cut from the previous month.

As reported last week, a major producer with operations in Singapore was also heard to have raised its prices on Oct. 1. The producer’s Group I solvent neutral 150 was expected to increase by $20 per metric ton, its SN500 by $70/t and its bright stock by $80/t. The company’s Group II 150 neutral was raised by $70/t and its 500N by $40/t.

Spot base oil prices in Asia were stable to firm on higher offers and bids, which were supported by tight supply and largely unchanged feedstock values, squeezing consumers’ margins as they found themselves with very limited buying options. Some of the spreads were adjusted in line with published ranges widely regarded as benchmarks for the region.

Ex-tank assessments for the Group I solvent neutral 150 grade edged up by $10/t to $510/t-$550/t. The SN500 was unchanged at $610/t-$650/t. Bright stock moved up by $5/t to $700/t-$735/t, all ex-tank Singapore this week.

Meanwhile, the Group II 150 neutral was steady at $530/t-$570/t, and the 500N was holding at $660/t-$690/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was steady at $430/t-$460/t, and the SN500 was higher by $10/t at $550/t-$590/t. Bright stock was adjusted up by $20/t to $640/t-680/t, FOB Asia.

Group II 150N went up by $10/t at the high end of the range to $490/t-$530/t FOB Asia, while the 500N and 600N cuts were hovering at $570/t-$610/t, FOB Asia.

In the Group III segment, the 4 centiStoke was stable at $700-$740/t and the 6 cSt was also unchanged at $720/t-$760/t. The 8 cSt grade was holding at $670-690/t, FOB Asia for fully approved product.

Upstream, crude oil futures drifted lower on mixed signals about the state of global crude oil demand, as countries continued to face challenging coronavirus conditions and oil supply was expected to mount, despite efforts by OPEC+ to curb production.

On Thursday, Oct. 8, Brent December futures were trading at $42.65 per barrel on the London-based ICE Futures Europe exchange, from $42.01/bbl on Oct. 1.

Dubai front month crude oil (Platts) financial futures settled at $41.65/bbl on the CME on Oct, 7, from $41.70/bbl on Sept. 30.

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.