Tight base oil supply and steady buying interest for the heavy grades were still the driving forces behind climbing spot prices in Asia, but there were some indications that requirements may be starting to weaken in key markets such as India and China. The restart of base oil plants following routine turnarounds was also expected to help alleviate the current tightness and price pressure, although it may take time for the market to feel that impact.
The alarming surge in coronavirus cases, hospitalizations and deaths in India, together with talk of a potential country-wide lockdown, have increasingly sown seeds of concern regarding lubricant consumption. The population’s mobility and activities would be reduced, leading to a possible slump in fuels and lubricants demand. Blenders continued to secure base oils to run operations, but were more cautious about the volumes and prices they were willing to pay. As a result, the gap between prices in India and the rest of Asia was widening.
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Several United States API Group II light-viscosity grade cargoes have been earmarked to move to India, but sources said that U.S. suppliers may have to consider other destinations moving forward if India is not able to absorb as much product as in recent weeks.
Sociopolitical issues in other areas of the world could also affect base oil shipments and trade patterns. A U.S. supplier was heard to have been shipping product to Israel, but given the current Israeli-Palestinian conflict, there could be disruptions to deliveries and upcoming cargoes may have to be redirected elsewhere, sources speculated. This means that more U.S. spot parcels may become available in the coming weeks, although supply in the U.S. was still very tight. An outage at the Colonial Pipeline there this week forced a number of producers to cut crude processing and this may have an impact on base oil production because of the reduced feedstock availability, exacerbating the current snug supply situation.
In China, buyers had been eager to acquire base stocks at all costs one or two months ago, when the lubricant production season peaked, and participated in competitive offers for Southeast Asian material, but buying appetite for imports seemed to have abated. While there was still keen interest in heavy-viscosity grades due to a lack of availability from domestic producers – and bright stock in particular was like a sought-after treasure – many buyers were trying to use up existing inventories, or utilize substitute grades in order to avoid paying the high prices currently being bandied about.
Chinese buyers were also counting on rising supplies from domestic producers who have wrapped up maintenance programs. Improved Group II availability from South Korean suppliers also meant that more cargoes could be moving to China. Several cargoes were fixed from South Korean ports to China this month and early June. Interestingly, it was heard that a base oil parcel had been booked from Nantong to Singapore – it was slightly unusual to see Chinese base oils being exported. There were also Middle East Group III cargoes expected to move to China in coming weeks.
In general, buyers in Asia were trying to take as much product as possible under term contracts to avoid being exposed to the relentless climb in base stock pricing.
A number of cargoes that were offered by Southeast Asian producers have remained in that region because prices were more attractive than in Northeast Asia. Some parcels were expected to move to the Middle East, where supply remained tight and numbers have surged in recent weeks.
Consumers also expected improved supply conditions because a number of Asian plants that have undergone or were in the process of completing turnarounds would be restarting and ramping up rates.
There were rumblings that ExxonMobil would be restarting its Group I plant in Singapore in May or June, but this could not be confirmed with the producer directly. The plant was idled in June 2020 and the producer’s Group I availability in Asia has not only been affected by this extended shutdown, but also by a fire at Eneos’ Group I plant in Wakayama, Japan, where ExxonMobil sources product on a regular basis. Repairs at Eneos’ Wakayama refinery were expected to be completed at the end of the month, according to sources.
Another Eneos Group I plant in Mizushima, Japan, remained off-line for an extended turnaround which started in mid-February and was not expected to be completed until mid-June. A third Eneos facility in Kainan was scheduled for a turnaround starting in early-May.
In India, a producer’s plant is undergoing an extended turnaround while the associated refinery completes an upgrade.
Looking ahead, Taiwanese producer Formosa Petrochemical was heard to have slated a month-long turnaround starting in July.
Spot prices in Asia were stable to firm. There were steep offers circulating in the region, but many buyers appeared more reluctant than a month ago to acquiesce to the lofty levels. The ranges portrayed below have been revised to reflect discussions, deals and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were steady to higher this week. The Group I solvent neutral 150 grade was holding at $970/t-$1,000/t. The SN500 was also steady at $1,570-$1,610/t. Bright stock moved up by $20/t to $1,870/t-$1,910/t, all ex-tank Singapore.
The Group II 150 neutral was unchanged at $1,050/t-$1,090/t, and the 500N was up also holding at $1,480/t-$1,520/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was steady at $840/t-$880/t, and the SN500 moved up by $20/t to $1,530/t-$1,570/t. Bright stock was assessed higher by $40/t to $1,840/t-1,880/t, FOB Asia.
Group II 150N was holding at $840/t-$880/t FOB Asia, while the 500N and 600N cuts edged up by $10/t to $1,290/t-$1,330/t, FOB Asia.
In the Group III segment, the 4 centiStoke was assessed up by $20/t at $1,280-$1,320/t and the 6 cSt was adjusted up by $20/t as well to $1,310/t-$1,350/t. The 8 cSt grade also moved up by $20/t to $1,230-1,270/t, FOB Asia for fully approved product.
Upstream, crude oil futures climbed to an eight-week high on Wednesday as U.S. crude exports fell and there were expectations that the economic recovery in that country would continue, leading to increased energy demand.
Additionally, the Organization of the Petroleum Exporting Countries on Tuesday upheld a forecast for a robust recovery in world oil demand in 2021, with growth in China and the U.S. outweighing the impact of the coronavirus crisis in India, Reuters reported.
On Thursday, May 13, Brent July futures were trading at $67.68 per barrel, from $68.72/bbl on May 6 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures settled at $66.78/bbl on the CME on May 12, from $66.30/bbl on May 5 (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.