The ongoing tight supply scenario has been aggravated by production outages and force majeure declarations in the United States – once a regular and prolific supplier of API Group II base oils for export markets, now a struggling participant trying to meet its own domestic demand.
According to reports, U.S. producers Motiva and ExxonMobil were forced to shut down refinery operations in Texas due to freezing conditions, which paralyzed almost every energy source, from power plants to wind turbines, causing extensive power and running water outages the week of Feb. 17. These issues also caused severe logistics and transportation disruptions.
As a result of the unplanned outages, both Motiva and ExxonMobil were heard to have declared force majeure on base oil grades produced at their facilities in Texas. The producers’ customers may not be able to receive all the volumes agreed under contract, and they were not likely to find spot cargoes easily either. Both producers were in the process of restarting their refineries, but it could not be ascertained when their base oil plants would resume production. This information was not directly confirmed by the producers, as they do not comment on their operations.
Motiva produces Group II and Group III grades at its Port Arthur, Texas, refinery and has been known to export large quantities of base oils to India, other destinations in Asia and the Middle East. ExxonMobil’s refinery in Baytown produces Group I and Group II grades, and the producer was heard to have recently been making intra-company shipments from the U.S. to Singapore to cover demand from buyers and its own downstream lubricant operations there, as one of its plants at that location has been down since June 2020. Given the current supply situation, sources speculated that these shipments from the U.S. would be affected.
U.S. exports to Asia and India had already been reduced since the third quarter last year, following production issues along the Gulf Coast stemming from hurricane-related outages.
Meanwhile, several producers in Asia were also preparing to take their plants off-line for routine turnarounds. Two South Korean producers will shut down their plants for turnarounds in March and were anticipated to cover term requirements, but limit spot business. These outages should tighten Group II and Group III availability in the region, according to sources.
Group I supplies remain constrained and spot prices of the heavy-viscosity grades and bright stock have climbed to levels not seen in several years.
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 Group I unit in India was also anticipated to be off-line for an extended period due to a turnaround at the associated refinery.
A Japanese Group I producer was in the middle of an extended turnaround likely to last for four months as of the end of February, exacerbating the regional tightness of Group I cuts.
Additionally in Japan, another producer’s plant was heard to be off-line after a 7.3 earthquake off the coast of Fukushima prefecture triggered an emergency shutdown on Feb. 13. The tremor’s epicenter was near the same location as the devastating earthquake of March 11, 2011, but thankfully did not cause a tsunami or affect the nuclear power plants in Fukushima. There were no further details available about the base oil plant’s status at the time of writing.
Base oil suppliers said buying interest had surged as consumers were eager to secure product for the busy spring season, when consumers purchase lubricants for oil changes, particularly in China, although base stock production in that country was deemed sufficient to cover light-viscosity oil requirements. Securing heavy-viscosity grades proved to be the most challenging, and buyers in India and Southeast Asia continued to lure cargoes away from China with more attractive bids.
Buyers from different regions, including South America, North America and Asia were all competing for the same barrels, sources said. Consequently, the price of some of the most sought grades such as bright stock have skyrocketed.
In India, the price of heavy grades continued to rise, but the lighter grades have stabilized. Domestic suppliers were also heard to have increased pricing because of the keen buying interest, snug supply and rising feedstock values.
A supplier of Middle East base oils commented that it had received numerous calls from buyers looking for Group II and Group III supplies as Asian availability was scarce.
At the same time, export supplies from the sole Taiwanese Group II producer and from a Southeast Asian Group I supplier have increased since January.
A major Singapore refiner was heard to have implemented two rounds of price markups since the beginning of the month. According to reports, the producer raised Group I solvent neutral 150 prices by $70 per metric ton, its SN500 by $230/t and its bright stock by $180/t. The producer’s Group II 500N price was also lifted by $110/t as of Feb. 11. The refiner had previously adjusted prices up on Feb. 8.
Given the strained supply conditions and the rising cost of crude oil, feedstocks and transportation, spot prices have once again moved up this week, although the steep hikes seemed to have decelerated. The ranges portrayed below have been revised to also reflect published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were stable to firm, with some of the ranges revised up on discussions and the most recent adjustments by a major producer. The Group I solvent neutral 150 grade was steady at $830/t-$860/t. The SN500 and bright stock edged up by $10/t to $1,220/t-$1,260/t and $1,310/t-$1,350/t, respectively, all ex-tank Singapore this week.
The Group II 150 neutral was up by $40/t at $940/t-$980/t, and the 500N was revised up by $50/t to $1,180/t-$1,210/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed up by $10/t at $740/t-$780/t, and the SN500 was up by $20/t at $1,200/t-$1,240/t. Bright stock also edged up by $20/t to $1,280/t-1,320/t, FOB Asia.
Group II 150N was higher by $20/t at $750/t-$790/t FOB Asia, while the 500N and 600N cuts also moved up by $20/t to $960/t-$1,000/t, FOB Asia.
In the Group III segment, the 4 centiStoke was assessed up by $30/t at $1,020-$1,060/t and the 6 cSt was also adjusted up by $20/t to $1,030/t-$1,070/t. The 8 cSt grade was $20/t higher as well at $960-1,000/t, FOB Asia for fully approved product.
Crude oil prices continued on an upward trend, rising to the highest levels in more than 11 months on monetary easing policies and trimmed crude production in the U.S.
On Thursday, February 25, Brent April futures were trading at $67.31 per barrel, from $64.59/bbl on Feb. 18 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures settled at $64.60/bbl on the CME on Feb. 24, from $62.68/bbl on Feb. 17 (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.