Price trends were diverging in Asia because availability of some base oil grades remained extremely tight while others became more accessible. Buyers also turned cautious as they preferred not to commit to large volumes in case prices weaken in coming weeks.
The combination of a more conservative attitude in terms of the quantities that were being purchased and the drop in demand from countries that were dealing with rising numbers of COVID-19 cases have led to improved supply levels of certain base stocks.
Get alerts when new Sustainability Blog articles are available.
However, it appeared that it was mostly supply of the lighter grades that has lengthened, and these grades were exposed to downward pressure. On the other hand, the heavier grades, API Group III grades and bright stock were still scarce and as a result, prices were stable to firmer.
Base oil production in China, a key market within Asia, has increased as plants ramped up operating rates and a new API Group II facility was heard to have started production. This meant that buyers were mostly able to rely on domestic supply rather than procure imported products. Nevertheless, the heavy viscosity grades and in particular the Group I cuts and bright stock were still difficult to obtain, driving importers to search far and wide for available cargoes. There was a wide gap between import prices and domestic prices, and buyers appeared less willing to pay the higher values for imports of those grades that were locally unavailable.
One of the main sources of Group I base oils continued to be Southeast Asia, with a couple of producers having offered parcels through tenders over the last several months. Until April, most of these cargoes were plucked by buyers in Singapore, India and other Southeast Asian locations, and Chinese importers have had to compete for these shipments.
While there was still keen interest on Southeast Asian exports, buyers have turned slightly more guarded about the price levels they were willing to pay to secure these cargoes. Some buyers were unable to afford the steep base oil price levels as they were unable to recoup these values from their lubricant sales. A number of them decided to halt production temporarily rather than incur losses. A fresh tender was issued earlier this week, with Chinese bidders expected to participate as it involved a bright stock cargo.
India had also been an avid player in the Southeast Asian base oils field, but many buyers have retreated given a slump in fuel and lubes consumption on the back of pandemic-related mobility and manufacturing restrictions. One of the segments that suffered a dramatic impact in India was the automotive industry, with car sales plummeting and manufacturing facilities halting production. The start of the monsoon season and the arrival of heavy rains may affect sales and logistics as well.
Base oil consumers in India were trying to use existing inventories, which were deemed healthy, and continued to procure volumes under contract, instead of venturing out into the spot market. Domestic base stock production may see an uptick as a large facility that was shut down due to a refinery maintenance and upgrade was heard to have resumed operations. Domestic suppliers were making their offers more attractive to maintain or increase market share as additional product was coming into play.
A regular source of Group II cargoes, particularly to India, has been the United States, but domestic supply there remained very strained, leaving little spot availability for export. It appeared that only limited supplies of light grades were on offer ex-US Gulf, but possible shipping delays were dampening interest in these cargoes. There was also increased availability of Group II light grades from Singapore and ex-tank prices were under pressure.
Another regular supplier of Group II grades, Taiwanese producer Formosa Petrochemical, has scheduled a turnaround at its Group II plant from early July that was anticipated to last through August. China typically receives large cargoes from Formosa and may see volumes decrease during the shutdown. Formosa has exported base oil cargoes to Southeast Asia and India in recent weeks as well.
South Korean base oil exports continued to spread throughout Asia, but some cargos were also moving to Brownsville, Texas, which were expected to be shipped on to Mexico. This was seen as a sign that there started to be extra availability in Asia and that suppliers were trying to avert a price drop by shipping product to more distant destinations, according to sources.
Market participants also commented that the hurricane season in the U.S. has started, and if there were any unexpected output disruptions caused by severe weather on the U.S. Gulf – where there is a concentration of base oil plants – all regions would likely be acutely impacted by a supply shortage there.
Group III base oils have been described as very tight in Asia as well, and prices have edged up. A number of recent turnarounds in the region and ongoing maintenance in Europe have resulted in reduced availability of most grades, driving bids and offers up.
As mentioned above, spot base oil prices in Asia showed a bifurcation this week. While some values were stable or higher, there was downward pressure on a number of grades. 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 lower week on week. The Group I solvent neutral 150 grade was down by $10/t at $960/t-$990/t, and the SN500 was also lower by $10/t at $1,540-$1,580/t. Bright stock was also adjusted down by $10/t to $1,870/t-$1,910/t, all ex-tank Singapore.
The Group II 150 neutral was lower by $10/t at $1,000/t-$1,040/t, and the 500N was also adjusted down by $10/t to $1,450/t-$1,490/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was holding at $840/t-$880/t, and the SN500 was steady at $1,510/t-$1,550/t. Bright stock was adjusted down by $10/t to $1,810/t-1,850/t, FOB Asia as buyers resisted steep offers.
Group II 150N was holding at $840/t-$880/t FOB Asia, while the 500N and 600N cuts were also steady at $1,290/t-$1,330/t, FOB Asia.
In the Group III segment, prices were assessed higher due to tight availability and fresh demand. The 4 centiStoke was up by $20/t at $1,360-$1,400/t and the 6 cSt was also higher by $20/t at $1,370/t-$1,410/t. The 8 cSt grade also moved up by $20/t to $1,300-1,340/t, FOB Asia for fully approved product.
Upstream, crude oil futures fell nearly 2% from their highest levels in years on Thursday as the dollar strengthened, following comments by the U.S. Federal Reserve that it might raise interest rates as soon as 2023. An unexpected increase in new coronavirus cases in Britain dampened demand projections, while supply concerns over the return of Iranian barrels also weighed on the market. Depending on the results of Friday’s presidential elections in Iran, U.S. sanctions on Iranian oil exports may or may not be removed.
On June 17, Brent August futures were trading at $73.10 per barrel, from $72.37/bbl on June 10 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures settled at $70.22/bbl on the CME on June 16, from $69.63/bbl on June 9 (CME note: Settlement prices on instruments without open interest or volume are provided for web users only and are not based on market activity.)
In other industry news, Motiva Enterprises announced that it has executed a long-term supply agreement with Aramco base oil affiliate S-Oil Corp. that will more than double Motiva’s current offer for Group III base oil in North America, Motiva stated in a press release dated June 17.
Per the agreement, Motiva will assume all North American marketing, sales, and distribution of Group III base oils produced by S-Oil (based in Onsan, South Korea). Phillips 66 Co. was previously the exclusive distributor for S-Oil Ultra-S Group III base oils in North America.
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.