The base oil market was gripped by fresh concerns about the global supply tightness, possibly exacerbated this week by weather-related outages in the United States, while steeper feedstock values played a major role in the steady rise of spot pricing as well. A regional producer nominated substantial increases to be implemented in the second half of the month, driving indications even higher.
The tight supply conditions observed in base oils markets all over the world since the fourth quarter of 2020 were the result of ongoing operating rate reductions at several refineries brought about by the coronavirus pandemic, coupled with steady demand, and planned and unplanned production outages.
This week, unusually cold weather in the state of Texas in the United States caused extensive power supply outages and icy conditions that forced several producers, including Motiva and ExxonMobil, to shut down operations. The spot supply levels in the U.S. were already fairly low, and these output disruptions would likely aggravate the situation. Other states also saw sub-zero temperatures that caused transportation disruptions and shipment delays. The U.S. is a significant source of spot export cargoes, particularly of API Group II base oils, which typically make their way to India, Singapore, and other Asian destinations.
However, availability has been strained as U.S. producers were focusing on meeting domestic demand, while ongoing output reductions and scheduled Group I, Group II and Group III turnarounds in Asia limited the amount of product offered into the spot market by regional producers. Europe had very little spot availability to offer as well, with the exception perhaps of Russia.
A large API Group I plant in Singapore has been shuttered since June 2020 and there were no updates as to when the unit might be restarted, with reports circulating about the likelihood that it may remain off-line indefinitely. The refiner has been importing product from its facilities in the U.S. and Europe to feed its lubricant operations in Asia, thus limiting the amount of base stocks going into the merchant spot market.
The Group I segment has been particularly tight, with bright stock commanding lots of attention and prompting heavy competition among buyers in China, India and Singapore. Bright stock prices have climbed to 10-year highs as a result.
In Japan, a Group I producer embarked on an extended turnaround likely to last for four months as of the end of February, adding to the regional tightness of Group I cuts.
In Thailand, a Group I plant will also be undergoing a maintenance program in March and the producer was expected to have no spot availability during the month.
A South Korean Group II and III producer and a second South Korean Group III producer will also be taking their plants off-line for turnarounds in March and were anticipated to cover term requirements, but refrain from selling spot cargoes.
At the same time, availability from some countries appeared to have improved. It was heard that more Group II cargoes had been moving from Taiwan to China compared to recent weeks, although the Lunar New Year holidays placed a damper on shipments.
Activity in China has been slow this week due to the New Year festivities, but buyers had been busy securing cargoes ahead of the holidays in order to avoid product shortages and higher prices upon their return to business. Purchases were mostly focused on the heavy-viscosity grades, which remained in scant supply in the country.
In India, buying interest for most grades remained healthy, and consumers have had to up their price indications in order to acquire base oil barrels heavily bid on by buyers in other countries. The recent increases in base oil prices have been transferred down the supply chain to finished products, but blenders acknowledged that it had become harder to recover the higher production costs. They were also hopeful that improved availability of base oils from domestic producers would allow them to rely less heavily on imports. There appeared to be an increased flow of Iranian Group I supplies into India in recent weeks as well.
A major Singapore refiner was heard to have nominated a second round of price markups since the beginning of the month. According to reports, the producer increased Group I solvent neutral 150 prices by $70 per metric ton, its SN500 by $230/t and its bright stock by $180/t as of Feb. 11. The producer’s Group II 500N price was raised by $110/t.
The refiner had already implemented increases on Feb. 8. Per the first initiative, its Group I SN150 went up by $20/t and its SN500 and bright stock by $50/t. The producer’s Group II 150N increased by $30/t and its 500N by $50/t.
Spot prices in Asia again saw hefty upward adjustments this week on the back of strained spot supply, lean inventories and steady demand. The ranges portrayed below have been revised to also reflect current discussions and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were revised up on higher bids and offers, recent transactions and the most recent adjustments by a major producer. The Group I solvent neutral 150 grade was up by $20 per metric ton at $830/t-$860/t. The SN500 and bright stock jumped by $100/t to $1,210/t-$1,250/t and $1,300/t-$1,340/t, respectively, all ex-tank Singapore this week.
The Group II 150 neutral was up by $30/t at $900/t-$940/t, and the 500N was revised up by $50/t to $1,130/t-$1,160/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed up by $10/t at $730/t-$770/t, and the SN500 jumped by $100/t to $1,180/t-$1,220/t. Bright stock also surged by $100/t to $1,260/t-1,300/t, FOB Asia.
Group II 150N was higher by $10/t at $730/t-$770/t FOB Asia, while the 500N and 600N cuts moved up by $20/t to $940/t-$980/t, FOB Asia.
In the Group III segment, the 4 centiStoke was assessed up by $30/t at $990-$1,030/t and the 6 cSt also climbed by $30/t to $1,010/t-$1,050/t. The 8 cSt grade was $30/t higher as well at $940-980/t, FOB Asia for fully approved product.
Upstream, oil prices rallied on Thursday to hit 13-month highs on concerns that the unusual sub-zero temperatures in Texas and freezing conditions that led to refinery shutdowns would disrupt U.S. crude output for an extended period, prompting additional buying.
On Thursday, February 18, Brent April futures were trading at $64.59 per barrel, from $61.17/bbl on Feb. 11 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures settled at $62.68/bbl on the CME on Feb. 17, from $60.37/bbl on Feb. 10 (CME note: Settlement prices on instruments without open interest or volume are provided for web users only and are not based on market activity.)
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.