The Asian base oil market was afflicted by a lack of clear price direction due to economic uncertainties, volatile crude oil prices and bulging supply levels.
While oil prices have softened from their highs registered six weeks ago – offering some relief to producers, whose profits were squeezed by the relentless climb in raw material costs – they continued to move erratically, going up one day and down the next. This fluctuation made it difficult for producers to predict costs and price their products accordingly, sources said.
While base oil prices had also shown moderate upward adjustments in April, reflecting the higher feedstock costs, ample supply had capped those gains and suppliers had been unable to fully recover margins. With crude prices moving down further this week, the market turned bearish and a few base oil cuts succumbed to the pressure.
Crude oil futures showed a small uptick on Thursday, as an industry report revealed a bigger-than-expected decline in United States crude inventories. Severe flooding in the countrys Midwest also impacted crude oil distribution from the main storage hub in Cushing, Oklahoma, Reuters reported.
The effect of the floods and the draw on U.S. inventories was tempered by continued concerns about an economic slowdown related to the U.S.-Chinese trade conflict.
The biggest Chinese newspaper explicitly warned the U.S. on Wednesday that China would cut off rare earth minerals exports as a countermeasure in the tense trade battle. The materials are crucial to the production of iPhones, electric vehicles and advanced precision weapons, CNBC.com reported.
U.S. West Texas Intermediate (WTI) crude futures closed down 0.6 percent on Wednesday after hitting their lowest since March 12 at $56.88 per barrel.
On Thursday, May 30, Brent July futures were trading at $69.82 per barrel on the London-based ICE Futures Europe exchange, up from $67.75/bbl on May 23.
On the base oils front, activity was somewhat subdued as buyers preferred to delay purchases as long as possible in hopes that offers would be adjusted down.
Given the steep feedstock costs that have impaired the industry over the last few months, producers appeared more willing to trim base oil production rates than continue slashing prices.
In key markets such as China, supplies were deemed more than adequate to cover requirements and spot prices remained under pressure. Spot import volumes have fallen since the beginning of the year, and were expected to remain down due to the ongoing trade conflict between China and the United States, which was affecting base oil demand and prospects in the lubricants sector.
The introduction of added capacity to the domestic supply system as new plants started production in China also added to the perception that supplies were exceeding demand for the moment.
The new base oil plant at Hengli PetroChemical Co.s refinery in Changxing, near Dalian, has reached mechanical completion, Chevron Lummus Global announced. The API Group II/III base oil plant will utilize Chevrons Isodewaxing technology. Chevron Lummus Global is a joint venture between Chevron U.S.A. Inc. and McDermott.
While the plant was expected to start operations this month, it was not clear whether commercial base oil production had begun, as no producer confirmation was available. The plants nameplate capacity will be 540,000 t/y of Group II/III base oils, according to LubesnGreases Guide to Global Base Oil Refining.
China has been eager to beef up on Group II production as high performance base oils are needed to manufacture automotive lubricants that meet stricter emission standards. With increased domestic availability of Group II barrels and a narrowing of the gap between Group I and Group II base stock prices, blenders are quickly switching to Group II products whenever possible.
As far as spot trading was concerned, Asian prices were steady-to-soft, with some numbers seeing a downward revision on lower crude numbers, plentiful availability and competitive activity among suppliers.
Ex-tank Singapore Group I prices for the solvent neutral 150 grade were steady at $740-$760/t per metric ton, while the SN500 was unchanged at $790/t-$810/t. Bright stock was heard at $900/t-$920/t, all ex-tank Singapore.
Group II 150 neutral was assessed at $780/t-$800/t, while the 500N was unchanged at $790/t-$820/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed down by $20-30/t at $630/t-$650/t, and the SN500 grade was also down by $20/t at $620/t-$640/t. Bright stock was fairly steady at $790/t-$810/t, FOB Asia.
Group II 150N was adjusted down by $10/t to $620/t-$640/t FOB Asia, while the 500N and 600N cuts were holding at $640/t-$660/t, FOB Asia.
In the Group III segment, the 4 centiStoke grade was notionally assessed lower by $10/t at $820-$860/t and the 6 cSt was also down by $10/t at $830/t-$875/t. The 8 cSt grade was unchanged at $730/t-$760/t, FOB Asia for fully-approved product to reflect current discussion levels
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.