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Updated to Q3 2020
Supply fell further, especially for SN500, as major Japanese refiner ENEOS Corp took its Negishi Group I unit off line from H1 September for a 70-day turnaround. Spot availability from Thailand remained limited as a couple of Thai refiners continued to run their units at reduced rates. ExxonMobil’s Singapore Group I unit remained shut since end-May due to poor production margins, with the restart date yet to be confirmed.
Overall demand in Asia including China remained relatively stagnant due to a gloomy global economic climate. Buyers remained cautious in their approach as the key downstream automotive sector continued to be lacklustre. India’s demand for SN500 seemed to be better partly because of short supply from Asia and the Middle East. This was despite India’s new coronavirus infections hitting record highs.
Group II supply in Q3 dropped due to turnarounds at South Korean S-Oil’s Group I and II units from August to September. While Taiwan’s Formosa Petrochemical Corp’s (FPCC) Group II unit restarted in August, the producer’s spot cargo availability outside of China remained limited. Other key Group II refiners in South Korea continued to run their units at reduced rates, while Chinese refinery run rates were largely stable.
Demand in China and southeast Asia in Q3 was largely stagnant. This was especially so for China, following its strong recovery in Q2. The resumption of production at local refineries resulted in less demand for imports due to ample availability at competitive prices. Demand in India picked up, especially for light grades 60/70N and 150N, following the easing of lockdowns in June. Business activities have gradually recovered, despite the worsening coronavirus situation in the country.
Supply from South Korea, the region’s main exporter of Group III base oils, was relatively constant in Q3 as there were no major turnarounds or further production cuts at a couple of key Group III refiners in the country. Supply from the Middle East to Asia, however, declined with lower volumes sent to China and India from UAE-based ADNOC and Bahrain’s BAPCO.
Demand in northeast and southeast Asia was relatively stagnant due to the weak downstream automotive sector. Group III base oils are mainly used in lubricant blending for passenger car engine oil. While some industries in India have recovered after lockdowns, automotive sales remain lacklustre due to the worsening outbreak in the country.
There was ample supply in the Group I market at the beginning of Q3, although early August saw some shortages. Production restraints at several European refineries at the end of the month led to further tightness. Heavier grades, in particular, were impacted. The export market was extremely tight for most of Q3, as producers kept material for the domestic market.
There was a slight recovery in demand at the beginning of Q3 following the severe drop in interest seen in Q2 amid a stalling automotive industry. Demand slumped in August as the typical summer holiday season kicked off. More buying interest was seen in September although not at pre-pandemic levels. Export demand saw a lift due to the tightness, particularly for brightstock.
Supply was balanced to long in early Q3. Pricing remained flat for most of the quarter although some oversupply and aggressive pricing was seen in August. September saw a shortage because less was imported from the US following hurricanes in the Gulf Coast. Heavier Group II grades were said to be shortest at the end of the quarter.
Demand was relatively stable for the majority of Q3. Although other groups saw a demand recovery, Group II was flat for most of the quarter. Demand firmed in September as shortages were seen in the market. Heavier-viscosity grades saw higher demand compared with lower-viscosity grades.
Supply was tight in Q3, with varying degrees of shortages seen among the grades. Supply of 4cSt was extremely tight at the start of the quarter, although availability improved by September. Supply of 6cSt was short for most of Q3, and 8cSt became tighter towards the end of the quarter. Spot limitations by a number of producers led to shortages in Q3.
Demand was strong in early Q3, leading to spot price increases. However, improved availability of 4cSt helped saw demand ease in September. Demand for 6cSt and 8cSt firmed in late Q3. Spot prices held stable in September as supply met demand.
Supply was tight in Q3. Group I shipments from Iran were delayed and limited by persistent production and logistical issues following the lifting of virus control measures. Supply from other regions was also limited, due to higher prices in Europe and in Asia, which discouraged exports.
Q3 demand saw a slow and gradual improvement as lockdowns in the region were lifted or eased. Some blending plants increased output and re-stocked, but further demand growth was hampered by slow automotive sales.
Group II 500/600N spot supply in the Middle East was tight. Asian producers showed little interest in exporting material to the region at price levels during the period, preferring instead to export to south Asia. Supply disruptions and maintenance shutdowns also curbed supply, and kept the market supported.
Demand improved as lockdowns and movement restrictions were lifted or eased. However, demand recovery was slow. Tight supply of Asian cargoes coupled with congestion at UAE ports drove many buyers to regional instead of overseas suppliers.
Supply was stable to tight through Q3 with sporadic port congestion in the UAE causing delays. Major Middle East Group III producers resumed production after lockdowns, but term commitments to India and the US resulted in a shortage of spot availability for regional buyers.
Middle East demand for Group III was largely stable in Q3. However, this was offset by limited spot availability for much of the quarter, which dampened demand.
Light-viscosity Group I base oil supply was sufficient for contract customers despite reduced refinery rates. Heavier grades, however, became snug. Brightstock was short and remained globally tight through the quarter. Group I of all viscosities became increasingly tight through the quarter on a global level amid ongoing reduced run rates and outages.
Group I base oil demand began to improve as coronavirus restrictions were lifted. Demand for heavy-viscosity grades and brightstock accelerated due to tight conditions. Demand for US material in export markets was strong for suppliers with availability. Tight supply drove stronger demand for Group II for applications that could substitute.
Group II base oil supply was sufficient for contract customers, but spot availability grew tighter. The US continued to meet strong demand in export markets, particularly India, Brazil and Nigeria. This tightened prompt availability. Hurricane Laura took two key Group II suppliers offline in late August, accounting for 42% of US Group II refining capacity.
Group II base oil demand was especially strong in export markets during Q3, largely from India and Brazil amid shortages in those markets. Exports were very active in the three months during the summer before Hurricane Laura subsequently halted discussions, as suppliers had little material to move and began to focus on contract customers.
Group III supply levels were balanced to snug during the quarter. As an importer of Group III, the US had reduced volumes flowing in during Q2 when demand was sidelined. Once it picked up in Q3, cargoes began to arrive to the US, but the market was short at times while awaiting new cargoes. Lower-priced material diminished, pressuring pricing higher. Some storage concerns mounted.
Group III demand was strong throughout the quarter as buyers replenished their stocks after Q2’s lockdown period. Suppliers saw strong demand in July, which carried into August. Spot offer levels firmed. Suppliers were focused on contract customers.
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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.