The return of fairly significant capacity to the market, following recent turnarounds at a time when demand typically starts to slow down, seemed to be one of those factors.

Producers Formosa Petrochemical in Taiwan and Hyundai Oilbank-Shell in South Korea both completed turnarounds in the last couple of months, bringing back barrels that had been absent from the spot market for several weeks, and even adding additional volumes as Hyundai Oilbank-Shell brought a plant expansion on stream.

Formosa’s plant can produce 600,000 metric tons per year of API Group II base oils, while Hyundai Oilbank/Shell has an expanded capacity of 1 million t/y of Group II oils.

Additionally, base oil units in China have also returned to production, including PetroChina‘s Karamay plant, which can produce 623,000 t/y of naphthenic base oils and was brought back on line in October.

At the same time, importers in the key market China have retreated from the market on lackluster demand from the downstream lubricant segments amid high base oil inventories in the country. Some base oil cuts were more readily available than others, with the light-viscosity grades in the Group I and II segments said to be slightly tighter than the heavier cuts.

One cut that seemed to be enjoying steady popularity was bright stock, as it is not easily replaced with other grades, but there has been quite a lot of substitution between Group I and II oils, whenever the price of one group appears more attractive than the other.

Given the plentiful availability of the high performance Group II cuts lately, prices were hovering close to Group I indications or even below.

The other factor that has been impacting the Asian market was the growing supply of Middle East product. The injection of increased barrels of Group II and III barrels into the Asian supply system over the past year have placed pressure on prices for base oils produced within the region.

The global oversupply of base oils – in particular, Group II cuts – was anticipated to deepen once the expanded ExxonMobil plant in Rotterdam, The Netherlands, begins production in early 2019. The output of Group II grades within the European region will likely displace product currently being imported from the United States and Asia. These barrels will have to find a home somewhere else, such as the Middle East, Latin America or Africa, sources noted.

Additionally, in China, there were reports that the new Hainan Handi Sunshine Petrochemical base oil unit would be starting up in March 2019. The new plant has a nameplate capacity of close to 750,000 t/y of Group II and III oils, although the exact capacity for each could not be determined.

It also appears that whenever a gap in supply looms on the horizon, there is plenty of material to fill it. This was expected to be the case of decreased Iranian Group I exports moving into India once the U.S. starts imposing sanctions on Iran on Nov. 4. While the sanctions will not specifically target base oils, and Iran insists that base oil exports will continue undeterred, difficulties in completing commercial transactions with Iranian entities may affect the conclusion of business in the near future.

While this might lead to a tightening of Iranian supply in India, it was heard that products from the U.S., the Baltic, and the Black Sea might be expected to make their way to Indian ports in coming months.

There were also reports that producers in Taiwan, South Korea and Singapore have trimmed operating rates in order to offset the growing supply and avoid a build-up of costly material, but it was not yet clear how much this was helping the market.

Spot prices continued to be exposed to downward pressure, but were assessed as flat this week after moving down last week to reflect discussions. Trading activity was muted, and suppliers tried to hold off on further price revisions.

Ex-tank Singapore numbers for Group I solvent neutral 150 were therefore unchanged at $760 per metric ton to $780/t, and the SN500/SN600 cuts at $840/t-$860/t. Bright stock was hovering at $890/t-$915/t, all ex-tank Singapore.

Group II 150 neutral was heard at around $795/t-$825/t and the 500N at $870/t-$890/t ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was steady at $700/t-$720/t, while SN500 was close to $790/t-$810/t. Bright stock was assessed at $820/t-$840/t FOB Asia.

Group II 150N was gauged at $730/t-$750/t FOB Asia, while 500N and 600N were trading at $790/t-$810/t FOB Asia.

In the Group III segment, 4 and 6 centiStoke grades were assessed at $860-$880/t and $840/t-$860/t, respectively, while the 8 cSt was unchanged at $750/t-$770/t, FOB Asia.

Upstream, crude oil prices extended earlier losses, with the U.S. benchmark set to register its lowest finish since April, and reports of rising global supplies pushing prices down.

Both Bloomberg and Reuters surveys revealed that members of the Organization of the Petroleum Exporting Countries (OPEC) had increased output in October to their highest level since late 2016.

OPEC lifted its production to 33.31 million barrels per day in October, up 390,000 barrels per day from September, according to the Reuters survey.

On Thursday, Nov. 1, Brent January futures were trading at $72.89 per barrel on the London-based ICE Futures Europe exchange, sharply down from $76.55/bbl for December futures on Oct. 25.

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

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