Group I buyers have been following developments related to the reinstatement of U.S. sanctions on Iran, as these may affect base oil exports from that country. U.S. President Donald Trump announced last week that the U.S. would abandon a nuclear deal with Iran that had been agreed during the previous administration.

Indian importers regularly procure Iranian Group I cargoes, and Iranian suppliers have also been shipping parcels to China and Europe during the years that the economic sanctions had not been in place. It was not yet clear how the base oil business would be impacted once the sanctions are reinstated.

The sanctions would not be imposed for at least three to six months, so the effects were not expected to become evident overnight. For the time being, it was heard that indications for Iranian base oils remained stable and trade was thin.

Activity in the Group II segment proceeded as expected for this time of the year, with buying interest from blenders that supply the automotive industry said to be healthy.

The steeper production costs that have been affecting all base oil tiers have resulted in upward price revisions of at least U.S. $10 per metric ton for regional Group II cuts. Offers from other regions such as the United States were also heard to have climbed.

It was heard that the Shandong Hengrunde Group II plant in Shandong, China, would be taken off-line for maintenance at the end of May. The unit can produce 200,000 metric tons per year of Group II base oils and was expected to be down until late June.

Competition between Asian and Middle East Group III producers appears to be intensifying, although some sources were of the opinion that the drive to maintain or gain market share was more pronounced in the U.S. market than in Asia.

It was heard that some of the new suppliers were in the process of attaining the necessary OEM approvals, which means that they would be able to directly compete with the more established producers.

Group III supply had been deemed tight a couple of months ago, when two South Korean producers, SK Lubricants and S-Oil, had taken their plants off-line for maintenance.

S-Oil restarted its plant in Onsan in early April, following a partial turnaround which started in March, and was heard to be running at full rates. The unit has capacity to produce 1.04 million metric tons per year of Group II+ and 999,000 t/y of Group III oils, according to LubesnGreases Guide to Global Base Oil Refining.

The SK Lubricants plant in Ulsan was heard to be back at full capacity, following a routine turnaround which started in March and was completed late last month. The unit can produce 701,000 t/y of Group II and 1.27 million t/y of Group III base oils. The producer had been monitoring sales carefully to ensure that all contractual obligations were met, despite the turnaround.

Asian spot assessments were stable-to-firm this week, as some base stocks underwent upward adjustments on steeper crude oil and raw material costs.

In terms of ex-tank Singapore numbers, Group I SN150 was notionally adjusted up by $10/t to $780/t-$800/t, while the SN500 was steady at $900/t-$920/t. Bright stock was also unchanged at $960/t-$980/t, all ex-tank Singapore.

Group II 150 neutral was assessed up by $10/t at $810/t-$840/t, and the 500N cut remained at $910/t-$930/t ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was up by $10/t at $700/t-$720/t, with the SN500 also moving up by $10/t to $850/t-$870/t. Bright stock was steady at $870/t-$900/t FOB Asia.

Group II 150N edged up by $10/t to $750/t-$770/t, and the 500N/600N was holding at $820/t-$850/t, all FOB Asia.

In the Group III segment, the 4 centiStoke and 6cSt grades were unchanged at $880-$900/t and $860/t-$880/t, respectively. The 8 cSt was steady at $760/t-$780/t, FOB Asia.

Upstream, crude oil futures continued to climb, with Brent hitting the $80 per barrel mark for the first time since November 2014 on concerns about the threat of reduced supplies from Iran after the United States withdrawal from the nuclear deal. The ongoing curb on oil production by OPEC members also contributed to the bullish trend.

On Thursday, May 17, Brent July futures were trading at $79.38 per barrel on the London-based ICE Futures Europe exchange, compared to $76.90 per barrel on May 10.

In other related news, Chinas National Development and Reform Commission increased the retail price of gasoline and diesel, in line with higher international crude oil prices, Xinhua News reported. The price of gasoline climbed by Chinese Yuan 170 per metric ton and that of diesel by CNY165/t (or approximately U.S. $27/t and $26/t respectively) as of May 12.

Under the current pricing mechanism, if global crude price fluctuations lead to price increases or declines of more than CNY50 per ton for domestic refined oil products, and remain so for 10 working days, gasoline and diesel prices are adjusted accordingly. Fluctuations in fuel prices in China may affect the lubricants sector as they influence how much consumers use their automobiles.

A new pricing system for retail fuel will also be implemented in Taiwan as of next week, according to Xinhua News. The new system includes rules that will be applied depending on the price level and fluctuations related to 95-octane unleaded gasoline.

Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.

LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.