Activity in Asian base oil markets was lively, which was slightly surprising given local holidays in a few countries and the approach of the end of the year, when buyers try to limit fresh purchases with the aim of reaching Dec. 31 with minimal volumes in their hands.
Participants agreed that the fourth quarter had so far been much like the rest of 2020 – perplexing and difficult to assess. Conditions have defied historical trends and it has been challenging for everyone to predict market movements as the coronavirus pandemic has been such a wild card in terms of how it has affected business. For example, China typically sees a seasonal increase in buying appetite in September and October, and demand tends to slow down in November and December. This year, the opposite seems to be taking place.
Many countries are currently facing a second or third wave of increasing infections, with some governments reimposing stay-at-home orders and other restrictions. However, most approaches have been “lighter” than when the virus was first detected, because the closings are more targeted, and businesses have not been as negatively impacted.
Nevertheless, the possibility that global demand for fuels and other refined products would drop has already impacted crude oil numbers as producers feared another supply glut. OPEC+ was mulling an extension of the supply curbs currently in place. Prices have come under pressure over the last couple of weeks, but news that the two coronavirus vaccines developed by Pfizer and Moderna had proven largely effective boosted oil prices earlier this week. Futures slipped on Thursday after the U.S. Energy Information Administration reported a build in crude inventories in that country.
On Thursday, November 19, Brent January futures were trading at $44.04 per barrel, from $43.79/bbl a week ago and $40.79/bbl on Nov. 5 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures settled at $43.87/bbl on the CME on Nov. 18, from $43.41/bbl on Nov. 11.
But base oil prices seemed to be less influenced by feedstock values than by the current supply and demand imbalance. Since a majority of refineries have been running at reduced rates to avoid a buildup of products during a period of lackluster automotive and jet fuel consumption earlier in the year, base oil output has also decreased.
This situation was juxtaposed with a sudden pick-up in demand when the first round of lockdowns were lifted, with several suppliers still trying to catch up with booming orders.
The current tightness seemed to be affecting all base oil groups, with API Group I heavy-viscosity grades and bright stock appearing to be some of the most coveted grades. The prolonged shutdown of a Group I plant in Singapore was said to have partly contributed to the reduced global supply of Group I grades.
Group II cuts have also been snug, particularly since hurricane-related production outages along the U.S. Gulf Coast have restricted the volumes available for export to destinations such as India. However, the recent restart and increased operating rates of Group II plants was likely to alleviate some of these constraints.
Furthermore, two turnarounds at a Taiwanese and South Korean base oil plants in the third quarter also exacerbated the general supply tightness in the region, but these plants have restarted and were heard to be running well.
There was also additional demand for Group II and III base oils as many consumers who were unable to procure Group I cuts have opted for using cuts from the other categories whenever formulations allowed it.
Group III supplies have similarly been strained due to the pickup in demand from the automotive segment, as emission restrictions are implemented in more countries and requirements for premium base oils have climbed. The pandemic has also resulted in increased small car purchases in countries such as Japan as people prefer to drive instead of taking public transportation, according to sources.
At the same time, Japan’s refiners have been running plants at reduced rates of around 70-75% of capacity. A Japanese producer’s Group I plant has been on turnaround since mid-September, but was expected to restart next week. There was no producer confirmation about the status of the plant. A vast majority of base oil production in Japan is Group I.
In China, buyers appeared anxious to secure cargoes as consumers in other areas such as southeast Asia and India had outbid them whenever spot cargoes had come to the market. This has even impacted shipments from Taiwan, which were typically directed to China when there was spot availability from the supplier there. However, it was heard that this month, the Taiwanese producer had shipped product to India instead.
A South Korean supplier was also expected to be sold out of December spot cargoes as it strove to meet contract obligations. Chinese buying ideas have therefore risen over the last couple of weeks.
Consumers in India have also been on the lookout for spot cargoes from various sources, including the Middle East, Southeast Asia and the U.S., particularly of heavy-vis grades.
A Group II light grades cargo was heard concluded last week from the U.S. to India. Approximately 20,000 metric tons were understood to be loading between the end of November to early December from a U.S. producer, while another large parcel of Taiwanese origin was also heard to have been fixed. Competition with buyers in other regions have driven prices up in India in recent weeks.
Spot base oil prices continued their ascent in Asia, as suppliers upped their offers and buyers appeared willing to pay the steeper prices in order to meet their product needs, although most preferred to acquire smaller cargoes rather than burden their stocks with large volumes. The numbers also reflected the recent adjustments of published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were again revised up this week on higher price indications due to snug availability. The Group I solvent neutral 150 grade was assessed up by $10/t at $590/t-$630/t. The SN500 edged up by $20/t to $730/t-$770/t and bright stock jumped by $40/t to $810/t-$850/t, all ex-tank Singapore this week.
The Group II 150 neutral was heard higher by $10/t at $600/t-$640/t, and the 500N moved up by $20/t to $750/t-$780/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed up by $10/t at $510/t-$550/t, and the SN500 also increased by $10/t to $650/t-$690/t. Bright stock was higher by $20/t at $730/t-770/t, FOB Asia.
Group II 150N was adjusted up by $10/t at $550/t-$590/t FOB Asia, while the 500N and 600N cuts moved up by $20/t to $660/t-$700/t, FOB Asia.
In the Group III segment, the 4 centiStoke and 6 cSt were adjusted up by $10/t at $760-$800/t and $780/t-$820/t, respectively. The 8 cSt grade was assessed higher by $10/t at $710-750/t, FOB Asia for fully approved product.
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.