Base oil trading continued at a steady clip in Asia, despite concerns about the potential effects on crude oil and refined products of a surge in coronavirus cases in many countries. This situation would likely force oil refiners to trim operating rates to avoid a product glut, thereby impacting feedstocks and base oil output.
While a majority of Asian nations have been able to control the spread of the virus, cases are increasing in key markets, with sporadic flare-ups seen in China, and new spikes in India’s capital city of New Delhi.
Interestingly, despite COVID-19-related issues in India, lubricants consumption has been healthy since strict lockdowns were lifted in late May. As a result, base oil demand has been strong, with buyers willing to increase their bids as cargoes have been increasingly difficult to obtain on a global tightening of availabilities.
There were reports that API Group II supply from the United States would gradually improve as a Group II plant has been restarted there, following a hurricane-related outage. Inventories remain tight in the U.S. given healthy demand, and it may take producers some time before they can rebuild inventories to fulfill spot inquiries. For the time being, producers there were focusing on meeting domestic contract requirements.
Shipments to India from the Middle East, Taiwan and South Korea have also intensified, as more product becomes available for export deals. Availability in Taiwan and South Korea had been more limited on the heels of turnarounds at two Group II facilities there, but producers were now able to offer additional spot cargoes. Availability from the Middle East had been more limited in October, but was expected to improve in coming weeks.
Thai Group I cargoes have also made their way to India, and additional shipments were anticipated in November.
Group I availability has tightened in Asia due to robust demand for high-viscosity base oils and bright stock for industrial applications and heavy duty motor oil, and turnarounds scheduled at two facilities in Japan, which regularly exports significant amounts of Group I oils.
The months of November and December typically bring a slowdown in requirements ahead of the year-end holidays and during a period of national festivals in countries such as India. For example, activity in India was anticipated to be subdued ahead and during the Hindu festival of Diwali in mid-November. For the time being, though, demand has not shown many signs of letting up.
The heavier grades and bright stock were also in high demand in China, but importers there have restricted the number of parcels they have procured because the country is becoming increasingly self-sufficient in terms of base oil supply. In those cases where consumers have sought imported parcels, they have been unable to obtain them because numbers did not work–buyers in other markets were willing to pay more for the same barrels. Chinese consumers have therefore increased their bid levels this week, in hopes of securing heavy-vis and bright stock cargoes that are not available within the domestic segment.
Demand for Group III base oils has also surged in Asia in recent weeks, particularly in Southeast Asia, while supply from regular sellers has tightened because of healthy demand in the U.S. and Europe.
With few cargoes up for grabs in Asia, spot prices have continued to climb as buyers appeared anxious to secure product and suppliers adjusted prices up. A major Southeast producer intends to lift its Group II 150N cut by $20/t and its 500N by $30/t as of Nov. 9. In Taiwan, there were reports that Formosa Petrochemical was also planning to raise domestic list prices in November.
Spot base oil assessments were stable to firm this week, reflecting the latest discussion levels and published prices widely accepted as benchmarks for the region.
Ex-tank assessments for the Group I solvent neutral 150 grade was assessed at $560/t-$600/t. The SN500 was up by $10/t at $690/t-$730/t and bright stock was heard at $750/t-$790/t, all ex-tank Singapore this week.
The Group II 150 neutral was higher by $10/t at $570/t-$610/t, and the 500N also edged up by $10/t to $710/t-$740/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 inched up by $10-20/t to $480/t-$520/t, and the SN500 increased by $10/t to $620/t-$660/t. Bright stock was higher by $10/t at $690/t-730/t, FOB Asia.
Group II 150N edged up by $10/t at $530/t-$570/t FOB Asia, while the 500N and 600N cuts moved up by $20-30/t at $620/t-$670/t, FOB Asia.
In the Group III segment, the 4 centiStoke and 6 cSt were assessed higher by $10/t at $730-$770/t and $750/t-$790/t, respectively. The 8 cSt grade was up by $20/t at the high end of the range at $680-720/t, FOB Asia for fully approved product.
Upstream, crude oil futures jumped on early results in the U.S. presidential elections and a significant draw in U.S. crude inventories. However, numbers were capped because of a ramp-up of oil production in Libya, oil and gas production restarts following the latest storm on the U.S. Gulf Coast, and additional lockdowns in Europe.
On Thursday, November 5, Brent January futures were trading at $40.79 per barrel on the London-based ICE Futures Europe exchange, from $38.87/bbl for December futures on Oct. 29.
Dubai front month crude oil (Platts) financial futures settled at $41.05/bbl on the CME on Nov. 4, from $38.92/bbl on Oct. 28.
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.