Some refineries have also ramped up run rates, after cutting back output as a response to the slump in demand for fuels and lubricants at the onset of the coronavirus pandemic and the ensuing lockdowns.

However, many countries in the region have reinstated restrictions given the rise in infection rates caused by the Delta variant, and while fuel demand has improved, aviation fuel consumption was still substantially behind pre-pandemic levels. Reduced air travel has also affected demand for aviation lubricants.

South Korean refiners were unlikely to see any significant recovery in aviation fuel exports for the rest of 2021, as major Asian transportation fuel suppliers did not expect international air travel to reach previous year’s levels, S&P Global Platts reported. It added that the bulk of South Korea’s aviation fuel exports rely on demand from Asia and the United States, but sales to these markets plunged to one-third of levels seen before the pandemic outbreak, and the outlook remains downbeat for the rest of the year, although strong air cargo demand may offer some respite.

Refiners were hoping for an increase in the number of air passengers in response to pent-up travel demand, improving financial conditions, and increasing disposable income in some of the region’s economies, but it was difficult to ascertain when this uptick would take place.

In terms of base oils, Group I availability in particular has started to improve in Asia because plants in Southeast Asia and Japan have resumed production, following scheduled and unscheduled turnarounds.

A Thai producer was heard to have offered Group I grades via a tender last week, with bright stock drawing particular attention from potential Chinese buyers as this grade remained short in China. The heavy-viscosity grades were generally harder to come by in China, and importers were therefore willing to seek alternatives in other markets.

A number of domestic plants in China have embarked on turnarounds this month, and others have cut back production as demand was starting to slow down. The output reduction was partly attributed to a change in tax rules that made base oil production less attractive.

Group II and III output levels in South Korea have grown given the restart of operations at base oil plants following scheduled turnarounds in the third quarter as well. Producers were focusing on meeting contractual commitments within the region—with cargoes booked for India, China, Singapore and other Southeast Asian nations.

There were inquiries to move several parcels from Yosu, Ulsan and Onsan to Taiwan, Thailand, China, Vietnam, Indonesia and India in August. As supply has started to lengthen, suppliers were also looking for opportunities in other regions and a number of cargoes were scheduled to move to the U.S. as supply remained tight and prices were higher than in Asia, or to Mexico and other South American destinations.

At the same time, Group II supplies tightened, given an almost two-month turnaround at the sole Taiwanese plant. Formosa Petrochemical’s Group II unit in Mailiao, Taiwan, was not expected to be restarted until mid-August. The plant has capacity to produce 600,000 metric tons per year of Group II base oils, according to Lubes’n’Greases’ Global Guide to Base Oil Refining.

In another key market, India, demand was showing signs of recovering, following depressed conditions on coronavirus-related lockdowns in the previous two months. While activity in various economic segments has picked up, base oil buyers maintained a cautious attitude as they preferred to use up existing inventories and were less willing to accept the steep offers being bandied about as they expected softer levels in coming weeks. Nevertheless, substantial volumes of light grades were anticipated to be shipped from South Korea to India this month and in August.

Group III supply remained tight because of healthy demand in Asia, Europe and the United States at a time when a number of plants in Asia and Europe underwent turnarounds.

Spot prices for Group III base oils have therefore continued to edge up but have stabilized this week. Values for Group I and Group II grades were steady to softer. 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 as supply increased and demand slowed down given lockdowns in a number of Southeast Asian countries. The Group I solvent neutral 150 grade was down by $20/t at $930/t-$960/t, but the SN500 edged down by $10/t to $1,470/t-$1,510/t. Bright stock was also lower by $10/t at $1,820/t-$1,860/t, all ex-tank Singapore.

Prices for the Group II 150 neutral decreased by $20/t at the high end of the range to $940/t-$980/t, and the 500N also edged down by $20/t to $1,430/t-$1,470/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was steady at $810/t-$850/t, but the SN500 fell by $30/t to $1,420/t-$1,460/t. Bright stock edged down by $20/t to $1,710/t-1,750/t, FOB Asia.

Group II 150N was unchanged at $820/t-$860/t FOB Asia, and the 500N and 600N cuts were also steady at $1,290/t-$1,330/t, FOB Asia.

In the Group III segment, prices have stabilized, although supply remained snug. The 4 centiStoke was holding at $1,420-$1,460/t and the 6 cSt was assessed at $1,430/t-$1,470/t. The 8 cSt grade was hovering at $1,360-1,400/t, FOB Asia for fully approved product.

Upstream, crude oil futures moved up on data of a significant crude inventory draw from the U.S. Energy Information Administration (EIA). Oil prices had plummeted earlier in July when the highly transmissible Delta variant started spreading through major economies, fueling fears of a demand drop.

On July 29, Brent September futures were trading at $74.97 per barrel on the London-based ICE Futures Europe exchange, from $73.62/bbl on July 22.

Dubai front month crude oil (Platts) financial futures for August settled at $69.65/bbl on the CME on July 21, from $71.92/bbl on July 14 (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.