While Asian producers appeared anxious to clear stocks as the end of the year approaches, buyers have adopted a wait-and-see attitude in hopes that a delay in purchasing would lead to lower pricing.
Furthermore, most end-users were cautious in terms of how much product to acquire as they also preferred to finish the year with low stocks, so as to avoid having to pay taxes on idle inventories.
This tendency, together with the traditional slowdown in activity during the year-end holiday period when a number of manufacturing plants either reduce operating rates, or idle production as employees head to their home towns, has resulted in a drop in buying interest in the region.
Consequently, spot base oil prices continued to be exposed to downward pressure, both due to slowing downstream demand, and from upstream conditions, as crude oil and raw material values have shown significant drops.
Crude futures eased on Tuesday after a slight uptick the previous session, as the United States Energy Information Administration reported a significant crude oil inventory build for the week to November 9, adding to concerns about increased production by OPEC members and non-OPEC producers against weaker global oil demand than previously anticipated. The lower oil consumption was linked to economic uncertainties.
On Thursday, Nov. 15, Brent January futures were trading at $66.80 per barrel on the London-based ICE Futures Europe exchange, down from $70.87/bbl on Nov. 8. Brent futures briefly touched $65/bbl earlier in the week as President Donald Trump suggested to the OPEC that it should abstain from implementing production cuts.
Following the reinstatement of U.S. sanctions on Iranian crude exports last week, Trump issued waivers to eight countries, including China, India, South Korea, Japan, Italy, Greece, Taiwan and Turkey, allowing them to continue importing Iranian oil for the next 180 days, but it was not clear whether this waiver would also cover other oil products, such as Iranian base oils exported to India, for example.
However, even if base stocks were exempt from sanctions, sources said that there were restrictions on financial transactions and maritime transportation since other countries did not want to be blacklisted by the U.S. if they chose to continue trading with Iran.
Participants were also trying to figure out the effect of the tariffs imposed as a result of the ongoing U.S.-China trade war, but some sources said that spot product moving between these two countries was negligible as traders preferred to find opportunities somewhere else, and Chinese inventories were rather plentiful in any case.
Many Chinese buyers had taken advantage of competitive pricing as supplies in Southeast and Northeast Asia were ample in October, and have padded their stocks, likely carrying them through the end of the year. Imports of Group II of Taiwanese origin had risen in October as well, as the local producer Formosa Petrochemical had restarted its base oil plant and had been able to offer more spot volumes.
Additional base stock capacity coming on stream in China was expected to impact pricing in the first quarter of the New Year, but output from the new plants was not expected to be stable for some time.
In other regions, given ample supply and lower crude oil and feedstock prices, base oil values have succumbed to pressure. Such was the case in the U.S., where at least one large API Group II producer lowered postings for contractual business by 25 cents per gallon on November 13. Numbers were also heard to be under pressure in Europe, as availability of most grades was deemed more than adequate.
Spot numbers for U.S. exports were also said to be slipping, and unlike earlier this year, when large volumes of U.S. product had moved into India and China, it was heard that cargoes were making their way to Africa, the Middle East, and South America instead.
Meanwhile, base oil trading in Asia was described as muted, with numbers reported as stable-to-softer week on week and some ranges notionally adjusted down to reflect discussions.
Ex-tank Singapore numbers for Group I solvent neutral 150 were unchanged at $760 per metric ton to $780/t, and the SN500/SN600 cuts were assessed $10/t from last week at $830/t-$850/t. Bright stock was hovering at $870/t-$890/t, all ex-tank Singapore.
Group II 150 neutral was heard down by $15/t at $780/t-$810/t and the 500N was lower by $10/t at $860/t-$880/t ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was unchanged at $700/t-$720/t, while SN500 was at $780/t-$800/t. Bright stock was assessed at $820/t-$840/t FOB Asia.
Group II 150N was heard at $730/t-$750/t FOB Asia, while 500N and 600N were gauged at $780/t-$800/t FOB Asia.
In the Group III segment, 4 and 6 centiStoke grades were holding at $860-$880/t and $840/t-$860/t, respectively, while the 8 cSt was at $750/t-$770/t, FOB Asia
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.