Asia market participants were keeping a close eye on crude oil developments, as prices remained volatile, with political and economic tensions affecting values and exerting pressure on base oil pricing.
Crude futures plummeted on Wednesday, registering their biggest decline in two years, on news that Libya would resume oil exports. The announcement that Libyas National Oil Corp would reopen four oil export terminals, ending a standoff that had shut down most of Libyas oil output, was the key element that caused a dramatic sell-off on Wednesday, Reuters reported.
On Thursday, July 12, Brent September futures were trading at $74.48 per barrel on the London-based ICE Futures Europe exchange, from $77.90 per barrel on July 5.
U.S. crude steadied above $70 per barrel, but the market continued to monitor the United States-China trade dispute.
Economists were worried that escalating trade tensions between the United States and China would hurt the global economy and result in lower crude oil demand, according to BBC News. On Tuesday, the U.S. unveiled a list of $200 billion worth of products to be hit with 10 percent tariffs, prompting China to vow counter-measures. This followed tariffs on $34 billion of each countrys goods that went into effect last week.
The tariffs may ultimately affect the base oil and lubricant business as well, although the exact extend of their impact was not yet clear, observers said.
Base oil discussions were somewhat subdued because of the uncertainty about possible price fluctuations in coming weeks, together with the start of the summer holidays in many countries.
Some base stock buyers have adopted a conservative approach and were only securing smaller cargoes in order to keep operations running, but tried to avoid an inventory build-up in case prices weakened later on in the year.
With a number of turnarounds scheduled during the second half of the year, a few grades were anticipated to remain tight for some time, but no shortfall was reported so far.
Some producers who have embarked on a turnaround strove to continue meeting most term contracts during their outages, but suspended the shipment of spot cargoes.
Taiwanese producer Formosa Petrochemical regularly exports spot cargoes to China, but it was heard to have suspended spot offers given a current turnaround at its API Group II plant in Mailiao, and is also trimming the volumes shipped under contract this month.
Formosa was heard to have shut down its 600,000 metric tons per year Group II plant earlier this week and was expected to complete a two-month maintenance program in early September.
Market observers said that given the added base stock capacity in the Middle East, which has come on stream over the last couple of years, the likelihood of product shortages in the region was slim.
In fact, it was heard that some of the Middle East producers were planning to increase shipments into India and China, among other destinations, over the next few months.
While some of these producers lack original equipment manufacturers approvals for automotive applications, there are still plenty of small, independent blenders that can use these base oils for other lubricants, and prefer to pay the competitive prices these oils are offered at, according to sources.
Spot prices were generally stable, although some segments seemed to be exposed to upward pressure given the tightening of supplies. This seemed to be the case for some of the lighter grades and bright stock.
Spot prices on an ex-tank Singapore basis were assessed unchanged on a lack of reported transactions, with Group I SN150 holding at $780/t-$800/t, and the SN500 at $890/t-$910/t. Bright stock was steady at $960/t-$980/t, all ex-tank Singapore.
Group II 150 neutral was holding 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 heard at $710/t-$730/t, while the SN500 was unchanged at $840/t-$860/t. Bright stock was assessed at $870/t-$890/t FOB Asia.
Group II 150N was gauged at $760/t-$780/t, while the 500N/600N was heard at $830/t-$860/t, all FOB Asia.
In the Group III segment, the 4 centiStoke and 6 cSt grades were hovering at $880-$900/t and $860/t-$880/t, respectively. The 8 cSt was assessed at $770/t-$790/t, FOB Asia.
In related market news, Chinas National Development and Reform Commission announced an increase in fuel prices, which went into effect on July 10, according to Xinhua News. The increase was due to higher crude oil values in international markets. The retail price of gasoline rose by Chinese Yuan (CNY) 270 per metric ton, while the price of diesel moved up by CNY260/t (or approximately U.S. $40/t and $39/t, respectively). Fluctuations in fuel prices influence driving patterns in China and can therefore have an impact on lubricant consumption.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.