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October 26, 2018

Volume 7 Issue 3

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Asia Base Oil Price Report

Despite volatility for crude oil and feedstock values, base oil prices in Asia were stable to soft, with some segments becoming exposed to downward pressure due to weakening market fundamentals.

Brent crude oil prices have pulled back from their lofty levels of around $80 per barrel recorded earlier in the month, bringing some relief to strained base oil margins.

Producers tried to raise base stock prices given the relentless climb in feedstock costs, but they had faced strong resistance from buyers, who did not appear concerned about base oils availability.

Supply was heard to be ample to cover current requirements, and many buyers were also happy to draw from existing inventories while they delayed fresh purchases in hopes that prices would come down.

Base oil values are typically more vulnerable to downward pressure during the last quarter because supply tends to lengthen, while demand also weakens ahead of the year-end holidays.

Furthermore, requirements in the key market China have been much less vigorous following the National Day holidays in early October than anticipated, and stocks were said to be high.

The resumption of production at a number of facilities in Asia, including Formosa Petrochemical's API Group II plant in Mailiao, Taiwan, was also contributing to an oversupply situation.

This was particularly the case in China, where a large portion of Formosa's production is shipped every month.

Some base oil producers have cut back production rates and are redirecting more of their raw materials into fuels output, and this could potentially help the market get into a more balanced supply and demand situation, sources conjectured.

It was heard that Formosa trimmed the operating rates at its base oil plant by about 10 percent this month, and further cutbacks were anticipated in November. Additionally, producers in South Korea and Singapore reportedly reduced running rates by similar percentage points.

Whether this reduction would impact the supply situation in a significant way remained to be seen, as the lower production was expected to be partly offset by a drop in demand during November and December.

Most buyers prefer to work down stocks during the last few weeks of the year, and avoid the purchase of large volumes whenever possible, so demand was anticipated to weaken in the weeks leading to the end of the year.

A similarly long supply scenario in other regions meant that competitive prices for imports were likely to emerge in coming weeks.

Further down the road, the start-up of the ExxonMobil plant in Rotterdam, The Netherlands, early next year was anticipated to result in additional product becoming available in the United States. The refiner was anticipated to ship less Group II from its U.S. plants to its downstream operations in Europe once the plant started full production. Extra barrels of U.S. Group II product that have so far been shipped to Europe may eventually make their way to Asia, sources noted.

It was heard that a number of U.S. producers have already been working on securing a new home for their base oils in Asia and the Middle East ahead of these market changes.

Meanwhile, base oil spot prices were assessed stable-to-soft on the back of fairly muted trading activity and lower buying and selling ideas. Prices were also adjusted to reflect published prices widely accepted as benchmarks in the region.

Ex-tank Singapore numbers for Group I solvent neutral 150 were steady at $760 per metric ton to $780/t, but the SN500/SN600 cuts were adjusted down by $20 per metric ton to $840/t-$860/t on lower discussion levels. Bright stock was also lower by $30/t at $890/t-$915/t, all ex-tank Singapore.

Group II 150 neutral was revised down by $10/t to $795/t-$825/t and the 500N was down by $20/t at $870/t-$890/t ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was assessed unchanged at $700/t-$720/t, while SN500 edged down by $30/t to $790/t-$810/t. Bright stock was also down by $30/t at $820/t-$840/t FOB Asia.

Group II 150N was down by $20/t at $730/t-$750/t FOB Asia, while 500N and 600N were also assessed down by $20/t at $790/t-$810/t FOB Asia.

In the Group III segment, 4 and 6 centiStoke grades moved down by $10/t to $860-$880/t and $840/t-$860/t, respectively, while 8 cSt was also down by $10/t at $750/t-$770/t, FOB Asia.

Upstream, crude oil prices fell by around 1 percent on Thursday, succumbing to pressure from sharp selloffs in global stock markets. U.S. stocks posted the biggest daily decline since 2011, wiping out the year’s gains.

There were also concerns ahead of the sanctions that the U.S. intends to impose against Iran’s crude exports, which would become effective from Nov. 4.

China’s oil majors Sinopec and China National Petroleum Corp. have not ordered any oil from Iran for November because of concerns that violating sanctions could impact their global operations and further exacerbate tensions between China and the U.S.

On Thursday, Oct. 25, Brent December futures were trading at $76.55 per barrel on the London-based ICE Futures Europe exchange, compared to $79.49/bbl on Oct. 18.

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.