Supply in the Asian base oil market was expected to remain long, despite upcoming turnarounds and potential operating rates cutbacks by regional producers, as demand levels were not likely to make great strides in the coming weeks.
One of the main factors impacting the supply and demand balance in many key nations was the ongoing trade tensions between the United States and China, as it spread economic uncertainty and dampened sentiment in the region. However, the apparent trade truce reached between the two countries during the G20 discussions in Osaka, Japan, over the weekend, was seen as an encouraging sign for business, with shares of Asian petrochemical companies ticking up on Monday.
The base oil supply and demand imbalance was expected to continue in the second half of the year and become even more pronounced in coming months, as requirements tend to weaken once the summer comes to an end. There will be more product entering the market as turnarounds are completed, and new plants that have recently come on stream crank up their operating rates.
The global base oil market is structurally oversupplied as it is, since production is expected to rise by around 7 percent this year, while demand is growing by approximately 1 percent annually, a market source noted.
Oversupply conditions have been weighing on base stock prices for some time, despite efforts by base oil producers to adjust plant operating rates when market conditions weaken and margins deteriorate. The global average operating rate of base oil plants used to hover at around 85 percent ten years ago, but it has dropped to around 75 percent, an industry expert commented.
In China, the start-up of a number of new plants was delayed from their original start-up dates in 2017-2018 to 2019 due to soft market fundamentals. However, many of the units that have come on stream this year are not running full out, with some facilities heard to be running at around 60 percent.
There are also a number of turnarounds taking place, or scheduled to start in the next few months. In China, Sinopec‘s Jingmen unit, which produces API Group I and II base oils, started a short turnaround the first week of July.
In Japan, Cosmo Oil was heard to have restarted its Group I plant in Yokkaichi, following a turnaround, while JXTG Nippon Oil and Energy will be taking its Mizushima A plant off-line for a one-month routine maintenance in September. JXTG had started a prolonged turnaround at its Mizushima B base oil plant in April, and was expected to restart the plant in June, but it could not be confirmed whether the plant had restarted as planned.
There were also unconfirmed reports that ExxonMobil had shut down its Group I plant in Pulau Ayer Chawan, Singapore, from late June to August for a routine turnaround.
Fluctuations in crude oil and feedstock values were also affecting business decisions in the base oil segment, sources said. Prices were on an upward trend earlier in the week, then plummeted on Tuesday, pressured by weak manufacturing data and concerns about slowing global economic growth and an accompanying decrease in oil demand.
An agreement by OPEC+ to extend oil production cutbacks and a moderate draw in U.S. crude inventories failed to reverse the fall on Wednesday.
On Thursday, July 4, Brent September futures were trading at $63.30 per barrel on the London-based ICE Futures Europe exchange, down from $66.55/bbl on June 27.
Spot base oil trading in Asia was characterized as steady, but not particularly vigorous, with prices exposed to downward pressure due to competition among suppliers. The prices portrayed below have been adjusted to bring them more in line with bids and offers and market transactions.
Ex-tank Singapore Group I prices for the solvent neutral 150 grade were unchanged at $740-$760/t per metric ton, while the SN500 was at $790/t-$810/t. Bright stock was unchanged at $900/t-$920/t, all ex-tank Singapore.
Group II 150 neutral was assessed at $780/t-$800/t, while the 500N was heard at $790/t-$820/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed down by $10/t at $620/t-$640/t, and the SN500 grade was also lower by $10/t at $610/t-$630/t. Bright stock was also adjusted down by $10/t to $780/t-$800/t, FOB Asia.
Group II 150N was revised down by $10/t to $610/t-$630/t FOB Asia, while the 500N and 600N cuts were down by $10/t at $630/t-$650/t, FOB Asia.
In the Group III segment, the 4 centiStoke grade was revised down by $10-20/t at $810-$840/t and the 6 cSt was unchanged at $830/t-$875/t. The 8 cSt grade was down by $10/t at $720/t-$750/t, FOB Asia for fully-approved product.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.