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Updated to Q2 2021
Tight supply began to ease following the restart of Japan ENEOS Corp’s Mizushima-B unit in end-May from a turnaround. However, the speed of the recovery in Japan was curbed as ENEOS Corp’s Wakayama unit was shut since late-March due to a process upset. Supply was further boosted from the restart of ExxonMobil’s Singapore Group I unit in H1 May after it was taken offline for a year due to poor refining margins.
Overall demand in Asia declined, especially in China and India, with the onset of the traditional lull demand season. Chinese import demand was curbed due to ample supply of lower priced domestic cargoes. India demand was suppressed since April due to strict lockdown restrictions stemming from the spike in coronavirus infections. Southeast Asian demand held up for much of Q2 before seeing signs of weakening in June amid the worsening coronavirus situation in some countries.
Overall Group II supply recovered slightly following the restart of South Korean GS Caltex’s Group II and III units in early May from regular maintenance. Supply of light grades 70N and 150N was longer than that of heavy grade 500/600N. Supply from southeast Asia was briefly interrupted due to technical woes at ExxonMobil’s Group II unit in H2 May for two weeks.
Overall demand in Q2 was softer for light grade 150N relative to heavy grade 500/600N. Demand for imports in China diminished due to an ample supply of lower-priced domestic cargoes. In India, demand was curbed since April due to strict lockdown restrictions as a result of the surge in coronavirus infections. Southeast Asian demand held firm in April and May before falling in June due to the worsening coronavirus situation in some countries.
Overall supply from South Korea, the main exporter of Group III in the region, was largely flat as spot availability remained limited. While SK Lubricants restarted one of its two Group III units in mid-April from a two-month turnaround, its other unit was shut from mid-April to end-May for maintenance. Supply from the Middle East remained suppressed on reduced volumes to China and India from UAE’s ADNOC and Bahrain’s BAPCO since around mid-2020.
Demand in northeast and southeast Asia was largely stable as the passenger car engine oil sector – the main downstream application – remained robust after demand recovered from last year’s strict lockdown. Demand in India stayed curbed due to lockdowns from April to June amid the spike in coronavirus infections, although Group III is used to a much lesser extent in the country as compared to Group I and II.
Base oils Group I tightness continued throughout Q2 for both domestic and export spot markets. Prices increased through April and early May before reaching some stability, which continued through June as well. Heavier grades remain the shortest, with brightstock supply very limited across the domestic and export markets. There was more SN150 available across the markets. There were several maintenance turnarounds ongoing through May but most of these turnarounds ended by mid-June.
Group I base oils spot demand was hit slightly in Q2 as some buyers pushed back at higher prices. Some buyers adopted a wait-and-see approach to the market, which caused stability in pricing through most of May and June. Overall buying interest was still firm in both the domestic and export markets amid the ongoing shortages. Export demand was stalled in some cases by cheaper material from the Middle East.
Domestic supply grew in Q2, with domestic production and imports rising. Spot prices peaked in May then stabilised for the rest of the quarter. Supply and demand were balanced by the end of Q2.
Demand was healthy throughout Q2. The need for Group II spot was higher at the start of the quarter due to limited spot availability. However, once supply levels improved demand was met. ”
Supply tightened in Q2. Spot availability was scarce from the second half of Q2 onwards. Neste conducted a major planned turnaround for the majority of Q2. ILBOC and Tatneft began planned maintenance turnarounds in June, which are expected to continue until late-July. 6cSt remains the tightest grade.
Demand increased, largely due to supply restrictions in Q2. Demand for lubricants rose in Q2, and while supply improved for Group I and II, Group III remained short. Greater demand drove spot prices on a persistent uptrend over Q2.
Middle East Group I regional base oils supply showed slow growth after the shortages seen since 2020. Group I bulk shipments from Iran began to flow, but were initially still hampered by logistical issues, following the lifting of virus control measures and due to sanctions on Iranian shipping lines. Supply from other regions was also limited, due to higher prices in Europe and in Asia, which discouraged exports.
Demand continued to show a slow and gradual increase as regional economic activities picked up. Some blending plants increased output and restocked inventories, but further demand growth was hampered by slow automotive sales and sluggish economic growth.
Group II 500/600N spot supply in the Middle East was in severe shortage in Q2 as Asian producers had little spot product to export to the region in bulk shipments, preferring instead to export to south and northeast Asia. Supply disruptions and maintenance shutdowns also curbed Group II supply. Some flexi-bag shipments were seen, but firm shipping costs continued to deter buyers.
Middle East Group II base oils demand rose as economic activities increased across the region. However, demand recovery was slow and the tight supply of Asian cargoes, coupled with firm prices and long delivery times, drove many buyers to regional suppliers instead of overseas suppliers.
Middle East Group III base oils spot supply was tight through Q2 with reduced output from major producers the main factors. Major Middle East Group III producers resumed production after lockdowns and spot supply to main UAE buyers resumed. India’s COVID-19 outbreak saw a drop in shipments there and led to higher supply in Middle East region, but this was short-lived.
Middle East demand for Group III was largely stable in Q2. Recovering economic activities in the region supported demand. Firming Group I and Group II prices drove many to seek higher quality of Group III instead, but Group III price gains eventually caught up.
Refiners resumed production following the mid-February deep freeze, but supplies remained tight through the quarter, particularly brightstock and heavy grades. Inventories further declined as suppliers worked through backlogged orders and managed stronger-than-usual demand. Ergon had an unexpected fire at its refinery, prompting a weeks-long outage, just after completing turnaround.
Demand was stronger than expected, outpacing available supplies, especially for brightstock. Ergon’s fire was particularly damaging, leaving customers without brightstock. Demand was undeterred by rising prices as downstream users were short on raw materials. Demand rose in June from buyers who typically opted for Group II material as Group II price gains outpaced Group I and supply was short.
Refiners resumed production following the mid-February deep freeze, but supplies remained tight through the quarter with force majeures and allocations in place. Inventories were further depleted as suppliers managed their backlogs. Initially, 220 and 600 were the tightest but 100 grew tighter as the quarter progressed. Reduced rates were heard but unconfirmed for at least one supplier.
Demand was stronger than expected, significantly outpacing availability. Finished goods were also short following the winter storm, which prompted demand for base oils. Increased demand for 100 was spurred by Group III shortages. Demand for 600 was also very strong as end-users looked to blend it with lighter-vis material for a mid-grade. Spot and export demand could not be fulfilled outside of contracts.
Supplies remained tight as suppliers in producing regions struggled to secure enough feedstock for their production. Feedstock was also more expensive. All grades were tight, but some suppliers were tighter on heavy grades due to the type of crude they ran. Shipping constraints also resulted in delays in shipments to the US, further keeping the market tight.
Demand strengthened through the quarter, with buyers undeterred by increasing prices. Shortages also prompted some to secure Group II+ rather than Group III. Buyers looked for spot but could not secure volumes. Demand was somewhat tempered by additive shortages.
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The main use for base oils is in the manufacture of lubricants, of which there are many thousands of types.
Base oils are the main component of finished lubricants and are derived from the heavy crude oil fraction in vacuum distillation. They are refined to impart physical and chemical properties that will make a good lubricant. Most base oils are combined with small amounts of chemical additives to form the finished lubricants such as motor oil.
The traditional method of making base oils involves solvent extraction to remove aromatic compounds and solvent dewaxing to take out unwanted waxes. More recently hydroprocessing techniques employing hydrogen and catalysts have been used to make base oils.
Group I base oils which are mostly produced by solvent processing are used in less demanding applications. Group II and III base oils are produced by hydroprocessing and used in higher performing lubricants. Group IV base oils are synthetic oils typically based on polyalphaolefins (PAOs). Group V oils are used in the formulation of oil additives.