In contrast with oversupply conditions that the base oils market typically experiences at the end of the year, and despite the effects of the coronavirus pandemic, product availability continued to be described as tight this month, with spot prices climbing to unexpected highs.
Another unusual fact this year was that the heavier viscosity grades were less readily available than the lighter grades, with bright stock said to be particularly difficult to locate. The heavy-vis cuts typically see less demand during the cold winter months.
The strained supply of most base stocks was partly attributed to ongoing reduced operating rates at various refineries and base oil plants throughout the year, in response to lackluster demand for fuels and other refined products brought about by the pandemic.
At the same time, base oil demand suddenly jumped after the lockdowns were lifted back in late May, following the first coronavirus wave, and producers did not have enough base oils to meet all the fresh requirements as they had been producing reduced volumes. While it took suppliers a while to catch up, they had to focus on term commitments and bypass many spot requirements as they had very little extra product to offer.
Additionally, a number of major plant turnarounds took place in the second half of the year in Taiwan, South Korea, Singapore and India, which exacerbated the snug supply situation. Even now, a number of producers have started to build inventories to cover term contracts during turnarounds scheduled for the first quarter of 2021.
Unplanned production outages in the United States caused by hurricanes along the Gulf Coast in late August led to reduced spot availability for export into destinations such as India. India traditionally receives significant amounts of product from the U.S. at the end of the year, as U.S. producers strive to clear inventories by Dec. 31 and offer plentiful volumes on the export market, but this has not been the case this year, as supply is very tight in the U.S. as well.
Middle East supplies continued to move to India and China, but volumes were also heard to have fallen due to turnarounds and steady demand in that region, together with healthy requirements from the U.S.
While Chinese buyers had kept a low profile on the international trading scene for most of the year, given that domestic supply was deemed sufficient to cover requirements, they have reappeared in recent weeks, and sparked competition with other regional consumers.
Chinese producers increased domestic prices in December, while Indian suppliers and the sole Taiwanese producer have also marked domestic prices up this month. Strong domestic requirements in these countries and in South Korea have absorbed base oil barrels that otherwise would have been offered for spot transactions.
As a result of all these factors, sellers have lifted offers and end-users have had to accept the steeper numbers in order to secure product.
There has been unusually strong interest in API Group I cargoes of Thai origin, with a number of parcels being discussed for January shipment and expected to attract keen buying interest from China and Southeast Asia buyers.
A South Korean producer was expected to offer light and heavy grades for January shipment through a tender this week, but the results were not available. A couple of other South Korean producers continued to supply term customers in India and had limited availability for spot transactions.
A major refiner in Singapore will be lifting its Group I and Group II prices for a second time in December, with the $30 per metric ton increase expected to become effective on Dec. 24.
Spot base oil prices in Asia edged up, buoyed by the snug supply and demand ratio and climbing bids and offers. The ranges portrayed below also reflected published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were assessed up once again this week on steeper offers from a large refiner. The Group I solvent neutral 150 grade was higher by $20/t at $695/t-$735/t. The SN500 also moved up by $20/t to $860/t-$900/t and bright stock was up by $20/t as well to $950/t-$990/t, all ex-tank Singapore this week.
The Group II 150 neutral jumped by $40/t to $750/t-$790/t, and the 500N was also adjusted up by $40/t to $880/t-$910/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed up by $20/t at $610/t-$650/t, and the SN500 was also up by $20/t at $780/t-$820/t. Bright stock was higher by $10/t at $860/t-900/t, FOB Asia.
Group II 150N was assessed up by $20/t at $640/t-$680/t FOB Asia, while the 500N and 600N cuts also edged up by $20/t to $750/t-$790/t, FOB Asia.
In the Group III segment, the 4 centiStoke was revised up by $10/t to $840-$880/t and the 6 cSt was also up by $10/t at $860/t-$900/t. Similarly, the 8 cSt grade moved up by $10/t to $780-820/t, FOB Asia for fully approved product.
Upstream, firm crude oil values continued to exert upward pressure on base oil price ideas, but oil futures retreated during the week as a new strain of the coronavirus was detected in the United Kingdom and other countries, triggering new lockdowns and border closings, amid expectations of a drop in crude demand.
Oil prices had climbed following the start of vaccination campaigns in many countries, the U.S. Senate’s approval of a stimulus package, and a provisional agreement by OPEC+ to maintain production quotas. The organization was expected to meet again on Jan. 4.
On Wednesday, Dec. 23, Brent February futures were trading at $49.37 per barrel, from $51.20/bbl on Dec. 17 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures settled at $49.56/bbl on the CME on Dec. 22, from $50.52/bbl on Dec. 16.
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.
Historic and current base oil pricing data are available for purchase in Excel format.