June 22, 2018
Volume 7 Issue 3
Asia Base Oil Price Report
Fundamentals were generally stable in the base oils market in Asia, with supply and demand deemed balanced, although many uncertainties clouded price predictions and dampened trade.
Participants’ main concern appeared to be the volatility seen on the raw materials front, with crude oil values going up one day and falling the next.
Economic and socio-political tensions in different regions contributed to the uncertain outlook, with talk about a trade war between the United States and China intensifying this week, and possible new sanctions on Iran looming on the horizon.
Rising trade tensions between the U.S. and China could impact many industries, including the base oil and lubricants sector, as the Trump administration released a revised list of proposed tariffs on China that included lubricants, additives, plastics and chemicals late last week.
China’s proposed tariffs were not as comprehensive, but they also included crude oil, natural gas, kerosene, diesel and other oil products.
If the tariffs were imposed, the Chinese economic growth rate was likely to slow down, according to experts.
With the U.S. also pulling out of the nuclear deal with Iran, there were expectations that the U.S. would implement new sanctions which may not only affect business deals between the U.S. and Iran, but other countries as well, as the sanctions would deny access to financial systems in the U.S. to any company doing business with Iran.
The effect that new trade restrictions could have on Iranian oil exports was uncertain, but there were expectations that the Organization of the Petroleum Exporting Countries could lift the output curb implemented since January 2017 to fill the gap left by a potential Iranian shortfall. OPEC members and other major oil producers were anticipated to discuss production quotas when they meet in Vienna on June 22.
Global oil prices saw a sharp drop on Thursday, June 21, after media reports indicated that Iran – which had opposed the lifting of production quotas – might accept a small increase in production at this week’s OPEC summit.
West Texas Intermediate futures, however, found some support after the U.S. Energy Information Administration reported a decrease of 5.9 million barrels in U.S. crude supplies – the largest weekly decline since January.
Brent August futures were trading at $73.49 per barrel on the London-based ICE Futures Europe exchange on June 21, down from $76.08 per barrel on June 14.
At the regional level, base oil activity proceeded at levels expected for this time of the year, when requirements tend to slow down ahead of the summer months.
Operating rates in lubricant manufacturing facilities tend to be reduced as demand weakens and employees take time off for summer holidays, leading to a slowdown in base oil trade and loosening supply levels.
However, this time of the year is also utilized by base oil producers to perform maintenance at their plants, which results in reduced availability of products.
Such is the case of Shandong Hengrunde’s Group II plant in Shandong, China, which was heard to have been taken off-line for maintenance the first week of June and will be down until early July, although this could not be confirmed.
In Taiwan, Formosa Petrochemical’s Group II plant will be taken off-line for a two-month turnaround in July.
There were also reports that the base oil units of Chinese producers Sinopec Jingmen, which produces Group I and II oils, and CNOOC Huizou, which manufactures Group II and III oils, would be shut down in September.
As a result of the plant turnarounds, and continued demand, the lighter grades in the Group I and II categories were expected to remain tight in coming months, supporting stable prices.
On the other hand, there was some downward pressure on the mid-and heavy-vis grades because of ample supply and lukewarm prospects in terms of requirements in the second half of the year.
In the meantime, most spot price assessments remained largely steady from a week ago, as business was subdued and not many changes were reported. One exception appeared to be the Group I solvent neutral 500, which underwent a slight downward revision to reflect current discussions.
Spot prices on an ex-tank Singapore basis were holding, with Group I SN150 assessed at $780/t-$800/t, and the SN500 was slightly down by $10/t at $890/t-$910/t. Bright stock was hovering at $960/t-$980/t, all ex-tank Singapore.
Group II 150 neutral was stable at $820/t-$850/t, and the 500N cut at $910/t-$930/t ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was unchanged week-on-week at $700/t-$720/t, but the SN500 was slightly down by $10/t at $840/t-$860/t. Bright stock was assessed at $870/t-$890/t FOB Asia.
Group II 150N was heard at $750/t-$770/t, while the 500N/600N was hovering at $830/t-$860/t, all FOB Asia.
In the Group III segment, the 4 centiStoke and 6 cSt grades were steady at $880-$900/t and $860/t-$880/t, respectively. The 8 cSt was discussed at $770/t-$790/t, FOB Asia.
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.