While price prospects on the crude oil side turned dimmer this week on the heels of renewed coronavirus-related lockdowns and curfews in Europe, the United States and Latin America, potentially stifling demand for oil, base oils continued to thrive in Asia, with spot prices climbing once again.
Spot cargoes were characterized as scant, because producers focused on meeting strong contractual obligations and were left with a limited number of supplies for spot transactions.
Aside from the healthy contract demand, the limited inventories were a result of throttled run rates at several refineries due to the falling price of fuels and distillates, in particular, jet fuel, given the sharp drop in airline business. With many restrictions on flying and border crossings still in place, airlines have seen a dramatic drop in passenger traffic and have therefore had to trim schedules and services.
Another reason for the tight availability of base oils was the sudden uptick in lubricant consumption levels in several countries after lockdowns had been lifted and industrial and automotive activities resumed at the end of the second quarter.
Nowhere was this more evident than in India, where demand for base oils and finished lubricants has improved considerably compared to earlier in the year, when lockdowns were first imposed. With the automotive segment seeing a significant pick-up in activity in September, lubricant needs experienced a sudden boost. Indian importers secured a good number of API Group II base oil cargoes from the United States since June, as supplies there had outweighed demand.
However, the balance in the U.S. Gulf Coast tilted to the tight side as soon as hurricane season started in late August, and shipments to India dwindled to a trickle. Several U.S. plants were forced to either reduce run rates for a few days, or shut down production completely as was the case at one facility. While the idled plant has restarted since then, many U.S. producers turned their focus onto domestic contract business because the market tightened, leaving them with very limited or no spot availability for export deals.
Once these U.S. cargoes dried up, a number of Middle East shipments appeared on the Indian scene, but supply has declined at that origin as well. Indian buyers were also heard to be after Thai cargoes, with a couple of transactions believed to have been concluded for loading in October.
Product shortages in the Group I segment, both in Europe and the U.S., also affected Group II and III supplies as consumers opted for blending these grades in certain applications to extend Group I cuts.
Within Asia itself, recent turnarounds at Taiwanese producer Formosa Petrochemical’s Group II plant in Mai-Liao and South Korean producer S-Oil’s Group II facilities in Onsan in the third quarter translated into reduced spot availability for export over the last couple of months. While the plants have resumed production and ramped up rates, the producers were still trying to build inventories and meet contractual obligations.
Formosa started to ship spot cargoes to China once again, but it was heard that these were smaller than earlier in the year. South Korean suppliers have also placed additional parcels into Southeast Asia and India this month, although the shipments to India were largely done under contract.
Interestingly, China has not been such an avid importer of base oils in recent weeks, as much of the country’s demand is being met by domestic supplies. Most Chinese base oil plants were heard to be running well, and a number of them have come on stream over the last year. The only exception in terms of product availability were the heavy grades, and in particular, bright stock, which was said to be extremely tight in China.
While China has typically been able to procure heavy grades and bright stock from sources such as Southeast Asia and Japan, turnarounds at plants there, and increased buying interest for these supplies from other buyers who have been willing to pay higher prices have diverted shipments away from China.
Thai suppliers were heard to have already finalized November shipments into other destinations within Southeast Asia and Northeast Asia. As buyers have grown increasingly anxious to secure cargoes for coming weeks, it was heard that discussions for December volumes had already started as well.
A major producer’s Group I plant in Singapore has been idle since the first half of the year, and there are reports it has not been restarted and may not be for the foreseeable future, but this could not be confirmed with the producer directly because the company does not comment on its plant operations.
The same producer has implemented price increases for its ex-tank indications on Oct. 19. The producer’s Group I and II light-viscosity grades were expected to be increased by $40 per metric ton, while its Group I and II heavy-viscosity grades and bright stock were slated to go up by $60/t. Although it was difficult to ascertain whether the full increases have been pushed through, ex-tank spot indications did move up week-on-week.
The producer received regular intra-company shipments from its plants in the U.S. and Europe to meet commitments in Asia, and this has reduced its ability to offer spot cargoes in all regions.
Participants said that given the current situation at many refineries where margins have narrowed due to lower refined product prices against shrinking demand, the possibility that more facilities would shut down has grown. In fact, U.S. producer Paulsboro Refining Company was heard to have decided to idle its refinery in New Jersey, although it will continue to produce Group I base oils.
Asian spot prices continued to be exposed to upward pressure due to ongoing supply tightness, but there was less strain from the crude oil and feedstock side as prices softened over the week.
Spot base oil assessments were adjusted up to reflect the latest discussions and the increase initiative from a key supplier.
Ex-tank assessments for the Group I solvent neutral 150 grade were revised up by $20/t to $560/t-$600/t. The SN500 also moved up by $20/t to $680/t-$720/t. Similarly, bright stock edged up by $20/t to $750/t-$790/t, all ex-tank Singapore this week.
The Group II 150 neutral was higher by $20/t at $560/t-$600/t, and the 500N also edged up by $20/t to $700/t-$730/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 edged by $20/t to $470/t-$500/t, and the SN500 increased by $30/t to $610/t-$650/t. Bright stock was higher by $20/t at $680/t-720/t, FOB Asia due to snug conditions.
Group II 150N was assessed higher by $20/t at $520/t-$560/t FOB Asia, while the 500N and 600N cuts moved up by $20/t at $600/t-$640/t, FOB Asia.
In the Group III segment, the 4 centiStoke and 6 cSt were assessed higher by $10/t at $720-$760/t and $740/t-$780/t, respectively. The 8 cSt grade was also up by $10/t at $680-700/t, FOB Asia for fully approved product.
Upstream, crude oil futures were lower on Thursday on concerns that increasing coronavirus cases in the Europe, U.S. and other countries would dampen demand for crude oil and oil products, while a stronger dollar also weighed on demand for the dollar-denominated commodity.
On Thursday, Oct. 29, Brent December futures were trading at $38.87 per barrel on the London-based ICE Futures Europe exchange, from $42.46/bbl on Oct. 22.
Dubai front month crude oil (Platts) financial futures settled at $38.92/bbl on the CME on Oct. 28, from $41.88/bbl on Oct. 21.
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.