Unlike a year ago, when the COVID-19 pandemic had just started to affect business activities, leading to a slump in fuel and base oil demand and growing inventories, this March, participants’ main concerns are the tight supply situation and dwindling stocks that characterize most regions.
The strained conditions were compounded by unplanned production outages on the United States Gulf Coast, brought about two weeks ago by sub-zero temperatures which caused power, gas and water outages in many Southern states. Added to that was the fact that a number of plants in the U.S. and several units in Asia were currently undergoing, or will be embarking on turnarounds in the next few weeks.
While the two major U.S. refineries that had been forced to shut down unexpectedly in Texas – Motiva‘s in Port Arthur and ExxonMobil‘s in Baytown – were heard to be in the process of restarting, it may be a while before the producers are able to attain full base oils output levels. Both Motiva and ExxonMobil have declared force majeure and placed their customers on allocation until they are able to produce base oils and build inventories. This information was not directly confirmed by the producers as they do not comment on their operations.
As a result, consumers have turned to other producers for product, but a majority of suppliers were focusing on meeting contractual obligations and had very little spot availability to offer. This also meant that there was limited material available for export. In recent weeks, U.S. suppliers had finalized shipments to India and Singapore, but these transactions were not expected to be repeated any time soon. Aside from the lack of availability, the rapid rise in posted and spot prices in the U.S. has made export transactions less viable.
At the same time, two major API Group II and Group III producers in South Korea were starting turnarounds, leading to a tightening of supplies in Asia.
SK Lubricants was planning to start a turnaround at its Group III plant in Ulsan the first week of March. The turnaround was expected to last 30-45 days. The company was finding it especially challenging this year because it was unable to stockpile inventory in preparation of the shutdown, which meant that once it was completed, supply would be especially tight, a source familiar with the company’s operations said. The producer was planning to start a turnaround at its SK-Repsol plant in Cartagena, Spain, in June as well.
GS Caltex was also anticipated to take its Yeosu plant off line for a routine maintenance program in March, although this could not be confirmed with the producer directly.
One of the base oil segments that has seen the most extreme tightening and accompanying increases in pricing was the API Group I sector. This was the result of Group I plant closures in recent years and ongoing reduced operating rates at existing refineries, triggered by the dramatic slump in fuels demand brought on by the pandemic, particularly jet kerosene.
In Thailand, a Group I plant was heard to have started a maintenance program this week and the producer was expected to have no spot availability during the month, according to sources. A second Thai supplier was heard to have very limited spot volumes to offer.
A Group I unit in India was also scheduled to be taken off-line for an extended period due to a turnaround at the associated refinery.
A Japanese Group I producer started an extended turnaround in February, which is likely to last for four months, exacerbating the regional tightness of Group I cuts.
A second Japanese producer’s plant was heard to have been briefly idle after a 7.3 earthquake off the coast of Fukushima prefecture triggered an emergency shutdown on Feb. 13.
Even Middle East suppliers, who had been able to ship increased amounts of base stocks to China, the U.S., India and other locations in previous months, were heard to have less spot availability as demand had been healthy, and they had been trying to catch up on shipments.
In India, buyers have been hoping to secure product from various sources, most recently showing interest in supplies from Southeast Asia. However, buyers in that part of Asia were willing to pay higher prices and have the advantage of lower transportation costs. U.S. product is likely to be very difficult to obtain and prices will not be as competitive, at least for the time being.
South Korea is typically a key source of base oils for India, but South Korean availability was also heard to be tight, with the exception perhaps of shipments from one supplier there. Middle East producers were striving to meet term obligations and had minimal spot availability, although the situation was expected to improve from this month on as a producer has completed a maintenance program. The options appeared to be getting more and more limited. There were reports that some shipments would be moving from Europe to India in coming weeks, but no further details were obtained. European availability of certain grades was also said to be less than ideal.
In China, demand was anticipated to flourish with the arrival of spring, when lubricant consumption increases as it is motorists’ preferred season for oil changes. The prices of heavy-viscosity base oils has jumped, particularly in comparison with the lighter grades, as China is structurally short of the heavy cuts. The Taiwanese Group II producer was expected to ship larger amounts of base oils to China in March, but spot availability from this supplier was also heard to be constrained.
Following hefty upward adjustments completed almost on a weekly basis since Q4 2020, the amount of each increase seemed to have contracted in Asia over the last couple of weeks – with the exception perhaps of the heavy grades – likely because of buyers’ resistance to the steeper levels. Blenders said that it had turned very difficult to transfer the recent increases in the cost of raw materials and transportation to finished products.
A major Singapore-based producer was reported to have increased prices on March 1, following two rounds of markups in February. The producer’s Group I 150 solvent neutral was raised by $90/t, its SN500 by $170/t and its bright stock by $200/t. The Group II 150N was lifted by $50/t and its 500N by $80/t, according to sources.
The ranges portrayed below have been revised to reflect discussions and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were steady to higher on fresh indications and the most recent adjustments by a major producer. The Group I solvent neutral 150 grade was stable at $830/t-$860/t. The SN500 and bright stock edged up by $50/t to $1,270/t-$1,310/t and $1,360/t-$1,400/t, respectively, all ex-tank Singapore this week.
The Group II 150 neutral was up by $10/t at $950/t-$990/t, and the 500N was revised up by $40/t to $1,220/t-$1,250/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed up by $10/t at $750/t-$790/t, and the SN500 was up by $30/t at $1,230/t-$1,270/t. Bright stock also edged up by $30/t to $1,310/t-1,350/t, FOB Asia.
Group II 150N was higher by $10/t at $760/t-$800/t FOB Asia, while the 500N and 600N cuts were assessed up by $30/t to $990/t-$1,030/t, FOB Asia.
In the Group III segment, the 4 centiStoke was assessed up by $30/t at $1,050-$1,090/t and the 6 cSt was adjusted up by $40/t to $1,070/t-$1,110/t. The 8 cSt grade was $40/t higher as well at $1,000-$1,040/t, FOB Asia for fully approved product.
Steep crude oil and feedstock prices have contributed to the meteoric rise in base oil numbers. While crude, diesel and gasoil prices have been on an upward trend in recent weeks, base oil prices have shown even more dramatic gains, leading to staggering premiums over crude oil and feedstock values due to the current supply constraints.
Crude oil futures fell early in the week on concerns that OPEC+ would decide to lift its production cuts during a meeting taking place on Thursday this week. However, futures jumped on Thursday on reports that the group did not intend to increase production as oil demand prospects were still tenuous given global economic uncertainties related to the pandemic. There were also expectations that jet fuel demand would start to improve as business travelers would gradually start flying again.
On Thursday, March 4, Brent May futures were trading at $67.08 per barrel, from $67.31/bbl for April futures on Feb. 25 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures settled at $62.08/bbl on the CME on March 3, from $64.60/bbl on Feb. 24 (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.