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December 21, 2018

Volume 7 Issue 3

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Asia Base Oil Price Report

As the-end-of-the-year holidays drew near, activity in the Asia base oil market slowed down, with buying interest described as lackluster and supply outpacing requirements.

Numerous downstream manufacturers typically reduce operating rates, or even idle operations for a few days, and base stock needs are therefore limited.

Most end-users were also making concerted efforts to work down inventories ahead of Dec. 31, or were only purchasing base oil volumes that were needed to keep operations running.

Producers also preferred to end the year with minimum stocks, and had therefore lowered base oil run rates in October and November, with the additional incentive that feedstocks were being used for gasoil production instead of base oils given a price advantage.

However, by mid-November, it became clear that tumbling crude oil and fuel prices were impacting refinery operations, and some producers reinstated higher production rates for base stocks.

These trends, together with sluggish seasonal demand, resulted in abundant regional availability of most grades and weighed on spot price ideas.

While industry sources agreed that it was difficult to predict where prices would be heading in the first quarter of 2019, most acknowledged that the market needed to rebalance itself before prices could recover.

Crude oil and raw material values also remained volatile, complicating predictions even more. If oil prices stabilized at current levels, then there was more of a chance that base oil prices would steady themselves as well, but participants wondered whether prices had reached the bottom yet.

At least the pressure from feedstock costs was not as high as earlier in the year, when margins were being squeezed due to steep crude oil values and stagnant base oil pricing, sources said. Benchmark Brent and West Texas Intermediate futures have fallen by more than 30 percent in the last two months.

On Thursday, reports by the United States Energy Information Administration showed a crude oil inventory draw of 500,000 barrels for the week to Dec. 14, after a weekly draw of 1.2 million barrels a week earlier, causing oil prices to recover slightly.

This report came on the back of American Petroleum Institute data reflecting a U.S. build in inventories of 3.45 million barrels, which pressured prices below US$60 a barrel for Brent and U.S. $50 a barrel for WTI earlier in the week.

As the world’s top three producers – the U.S., Russia and Saudi Arabia – continued to pump oil at record rates, concerns about oversupply remained. The downward trend could be reversed next month when OPEC and other oil-producing nations were expected to implement output cuts, but this remains to be seen.

On Thursday afternoon, Brent February futures were trading at $57.51/bbl on the London-based ICE Futures Europe exchange, down from $60.73/bbl on Dec. 13.

Reflecting the general bearish market sentiment in Asia, some domestic base oil prices in China and Taiwan were heard to have been adjusted down at the start of December.

Taiwanese API Group II producer Formosa Petrochemical was heard to have lowered its domestic list prices for Group II 70 neutral and 500N cuts in December, while the price of its 150N oil was left unchanged.

Formosa's 70N cut was reported down by Taiwan New Dollars (NT$) 0.94 per liter, while its 500N was marked down by NT$0.29/liter.

Regional base oil spot prices were steady to soft in the week as buying appetite has declined and was not expected to pick up substantially until after the holidays.

Suppliers reported small sales to buyers looking for year-end bargains, with some sellers heard to be willing to provide discounts, but these transactions were limited in number and not seen as representative of the market as a whole.

Ex-tank Singapore prices for Group I solvent neutral 150 were largely unchanged at $760 per metric ton to $780/t, while SN500 was steady at $790/t-$810/t. Bright stock was holding at $880/t-$900/t, all ex-tank Singapore.

Group II 150 neutral was heard at $780/t-$810/t and 500N at $800/t-$820/t, all ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was assessed at $690/t-$710/t, while SN500 was hovering at $680/t-$700/t. Bright stock was steady at $810/t-$830/t, FOB Asia.

Group II 150N was heard at $680/t-$700/t FOB Asia, while 500N and 600N were gauged near $700/t-$720/t, FOB Asia.

In the Group III segment, the 4 centiStoke grade was adjusted down by $10/t to reflect current discussions at $850-$870/t and 6 cSt was also down by $10/t at $860/t-$880/t. The 8 cSt grade also edged down by $10/t to $710/t-$740/t, FOB Asia on healthy supply.

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.