The tone of the Asian base oil market turned slightly more cautious as many countries suffered flare-ups of coronavirus infections, and new restrictions were imposed around the globe again, possibly leading to another drop in demand for crude oil and refined products.
With the start of the colder weather and the flu season in the Northern hemisphere, there were expectations that the pandemic would further impact driving habits and consumer spending, which in turn would affect fuel and lubricant consumption.
Nevertheless, in a few countries, such as China, manufacturing seemed to continue unencumbered, despite recent cluster infections in cities such as Qindao. Chinese industrial activity fell sharply in the first quarter of the year due to lockdown measures and the spread of the virus around the world, which resulted in reduced demand for Chinese goods as well. However, consumption improved after the lockdowns were lifted at the end of the first quarter.
Since then, Chinese interest in base oil imports has been fairly healthy, and this, together with buying appetite in another key market, India, has significantly driven price indications up in the region.
However, most Chinese base oil plants increased operating rates, and new plants have come on stream since last year, reducing the country’s reliance on imports and keeping domestic prices from climbing too much. As a result, interest in base oil imports started to wane in August.
One exception appeared to be bright stock, which remained in high demand and prices have moved up this week as global supply of this cut remained strained. Chinese buyers have had to up the ante and increase their bids so as to secure cargoes, as competition from India and a couple of Middle East nations was strong.
India’s appetite for imports continued to be quite healthy, but the country’s economy has been weighed down by a significant increase in coronavirus infections. India has been on the lookout for additional base oil imports since June, when the country eased lockdown measures, as domestic production was generally not deemed sufficient to meet demand.
An Indian producer was expected to shut down its plant for a turnaround in the fourth quarter, exacerbating the tight supply situation.
Large base stock volumes moved to India from the United States, South Korea and the Middle East in July, August and September, but the stream of imports from the United States has been reduced to a trickle because of limited availability in that country.
This is because there are hardly any spot barrels of API Group I or II base oils as most U.S. facilities had been running at reduced rates, compounded by the recent unexpected shutdowns due to hurricanes. On Oct. 9, Hurricane Delta, the second tropical storm to hit the U.S. Gulf Coast in two months, caused further delays in the restart of Excel Paralubes‘ Group II plant near Lake Charles, Louisiana. The plant had sustained some damage from a previous storm, Hurricane Laura, in late August, and had been expected to restart around mid-October.
Additionally, the largest Group II producer, Motiva, was also forced to reduce run rates at its Port Arthur, Texas, plant ahead of Delta and lost about two to three days’ worth of production, according to sources. While the plant was back up and running, the producer was heard to have no extra spot availability for export until it is able to build inventories.
Only a couple of cargoes of U.S. origin were anticipated to reach Indian shores in the next couple of weeks as they loaded before availability diminished.
India has therefore turned to the Middle East and South Korea for additional base oil supplies, with some shipments from Qatar and Iran having been reported. South Korean producers have also offered some cargoes, but spot supply from that origin was also deemed scant.
In Japan, a couple of Group I plants were anticipated to be taken off-line for routine turnarounds during the last quarter, tightening fundamentals in the region even more as Japan is a key exporter of these cuts.
At the same time, the restart of Formosa Petrochemical‘s Group II plant in Taiwan and S-Oil’s Group I and II plant in South Korea over the last couple of months, following routine turnarounds, was expected to lead to an increase in spot availability within Asia in coming weeks.
Still, the general perception was that extra supply remained scarce, especially for Group I and II grades, as there has been increased consumption from industrial, marine and automotive applications. Group III has tightened as well as some blenders have chosen to use these grades whenever possible due to the difficulties in locating Group II cuts, whose values have also risen.
The engine oil segment has shown an uptick in most countries because of new car sales as people preferred to avoid public transportation, and an increase in driving distances, but the recovery may stall if new lockdowns are imposed.
While base oil demand levels were still lagging compared to 2019, there was definitely an improvement in the third quarter over the second quarter, sources said. The question remained whether this trend would be sustained in the last quarter of the year, when demand tends to dwindle, and both buyers and sellers try to lower inventory levels.
Furthermore, consumers have tried to secure all the volumes they are entitled to under their contracts as there was concern about spot prices shooting up. As a result, most buyers’ requirements are well-covered for the time being, but there were still some spot inquiries that went unfulfilled.
Reports circulated that a producer based in Singapore would once again be increasing the price of its ex-tank offers; this would be the third upward adjustment in slightly over a month. The producer’s Group I and II light-viscosity grades will be lifted by $40 per metric ton, while its Group I and II heavy-viscosity grades and bright stock will be raised by $60/t, all effective October 19, according to sources.
Spot base oil prices in Asia have been on a steady climb in recent weeks because of the limited supply situation, and were stable-to-firm, showing upward adjustments for ex-tank Singapore assessments as a major producer will be lifting its prices this week.
Ex-tank assessments for the Group I solvent neutral 150 grade edged up by $10/t to $520/t-$560/t. The SN500 was higher by $20/t at $630/t-$670/t. Bright stock jumped by $20/t to $720/t-$755/t, all ex-tank Singapore this week.
The Group II 150 neutral was steady at $530/t-$570/t, but the 500N edged up by $10/t to $670/t-$700/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was unchanged at $430/t-$460/t, and the SN500 was hovering at $550/t-$590/t. Bright stock was higher by $10/t at $650/t-690/t, FOB Asia due to tight conditions.
Group II 150N was steady at $490/t-$530/t FOB Asia, while the 500N and 600N cuts were heard 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 hovering 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 climbed on Wednesday on reports of a bigger-than-expected draw in U.S. crude oil inventories, but numbers slipped in early trading on Thursday as the demand outlook was lackluster on concerns about the impact of a second wave of coronavirus infections.
On Thursday, Oct. 15, Brent December futures traded at $42.19 per barrel on the London-based ICE Futures Europe exchange, up from $42.65/bbl on Oct. 8.
Dubai front month crude oil (Platts) financial futures settled at $42.84/bbl on the CME on Oct. 14, up from $41.65/bbl on Oct. 7.
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.