Like many other aspects of 2020 that have been rather atypical, demand in the Asian base oils market remained robust in November, contradicting seasonal patterns and the usual buyer efforts to lower inventory levels at the end of the year.
Suppliers reported healthy buying interest for November and early December cargoes, despite prices continuing to climb, catapulted by tight supply and stable feedstock values.
Buying appetite was partly incited by prospects of product shortages and higher prices, since it appeared that producers were finding it difficult to meet spot requirements.
A majority of consumers took as much material under contract as possible to avoid having to pay steeper spot prices later, and this resulted in limited spot availability. Additionally, a few buyers were heard to be considering increasing the volumes taken under contract next year in case the rising spot price trend persists. This would also prevent them from having to hunt for hard to find products such as bright stock, which seemed to be tight in all regions.
At the same time, suppliers said that it was difficult to predict how operations were going to be next year, whether run rates would be increased, and whether some of the production would be shut down. Some producers delayed turnarounds scheduled for 2020 till next year because of the COVID-19 impact on the availability of employees and some of the new safety measures that had to be implemented.
Most refiners ran plants at reduced rates due to a slump in fuel and distillates since earlier in the year, when the coronavirus pandemic first started to impact the population’s mobility.
While lockdowns and stay-at-home orders were largely lifted, there were still restrictions for travelers in many countries, and airlines have seen a significant slump in business, resulting in a drop for jet fuel demand.
Similarly, motor oil and fuel demand declined, compared to levels seen at the same time last year, and new spikes in coronavirus infections in several countries raised new concerns about a possible crude oil, gasoline and diesel glut in coming weeks.
While base oil margins have risen to the best levels in years, margins for fuels and distillates have plunged.
Crude oil values slipped when Europe and the United States started once again to impose some COVID-19-related restrictions this month, but futures have since jumped to eight-month highs on optimistic news about the effectiveness of several vaccines.
On Wednesday, Nov. 25, Brent January futures were trading at $48.49 per barrel, from $44.04/bbl on Nov. 19 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures settled at $47.14/bbl on the CME on Nov. 24, from $43.87/bbl on Nov. 18.
One of the base oil segments that appeared to be the most impacted by tight supply was the API Group I category. Heavy-viscosity grades and bright stock remained strained, particularly in China. However, Chinese buyers appeared more reluctant to pay the climbing price indications than their counterparts in the region.
Several Group I cargoes of Thai origin were heard to have been booked for destinations in Southeast Asia and India, and another supplier in Southeast Asia was heard to be in negotiations for December shipments, but a majority of sellers did not appear in a rush to conclude business as they expected prices to continue to swing upward. It was heard that one of the Thai producers had placed its spot availability via a tender and the base stocks were likely to move to India.
Group II supplies also tightened, partly because those buyers unable to secure Group I cuts purchased Group II for certain downstream applications. It was heard that Group I was in short supply in India due to a turnaround at a local producer’s base oil plant, while a two-month turnaround at a Japanese Group I unit was also thought to contribute to the regional tightness.
Group II was also more difficult to source in the United States, but it appeared that availability at that origin is improving and around 25,000 metric tons have been booked for shipment to India in December. While several U.S. Gulf Coast plants suffered production setbacks due to recent hurricanes, production was heard to be ramping up.
Group III grades were also utilized as substitute for other grades and have therefore seen strong demand and reduced availability, supporting sellers’ climbing price expectations.
Chinese interest for imports was subdued compared to that of buyers in India and the Middle East. Indian consumers were heard to be on the lookout for Group II grades, which have not been as readily available from the U.S., Taiwan and South Korea as earlier in the year, and Group III from the Middle East. However, Group III suppliers appeared keen to ship more product to the U.S., where prices were higher.
The strong demand for base oils in India was said to be mostly driven by a pickup in demand from downstream industrial, agriculture and automotive segments. Auto sales soared since September after floundering in previous months, likely because of people preferring to drive rather than take public transportation, coupled with low interest rates for car purchases.
Spot base oil prices in Asia were once again on an upward trek, with supply tightness rather than other factors such as feedstock values influencing price levels. The numbers also reflected the recent adjustments of published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were adjusted up this week on higher price indications due to limited availability of spot cargoes. The Group I solvent neutral 150 grade was assessed up by $20/t at $610/t-$650/t. The SN500 edged up by $20/t to $750/t-$790/t and bright stock was also up by $20/t at $830/t-$870/t, all ex-tank Singapore this week.
The Group II 150 neutral jumped by $30/t to $630/t-$670/t, and the 500N moved up by $20/t to $770/t-$800/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed up by $20/t at $530/t-$570/t, and the SN500 rose by $30/t to $680/t-$720/t. Bright stock was also higher by $30/t at $760/t-800/t, FOB Asia.
Group II 150N was adjusted up by $20/t at $570/t-$610/t FOB Asia, while the 500N and 600N cuts also edged up by $20/t to $680/t-$720/t, FOB Asia.
In the Group III segment, the 4 centiStoke and 6 cSt were adjusted up by $20/t at $780-$820/t and $800/t-$840/t, respectively. The 8 cSt grade was also assessed higher by $20/t at $730-770/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.