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July 26, 2019

Volume 7 Issue 8

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Asia Base Oil Price Report

Abundant supply and wavering demand partly dampened business prospects in Asia's base oil markets. Production cutbacks were expected to bring some relief but likely not to be a panacea for the region's imbalances.

The ample availability of most base oil grades and a softening in demand continued to place pressure on spot price ideas, but producers have taken the first steps to try to establish a more balanced supply and demand scenario by trimming plant operating rates.

One of the segments that seemed to have the most copious amounts of supply was the API Group II sector. Participants partly attributed this to the fact that ExxonMobil started production of Group II base oils at its plant in Rotterdam, the Netherlands, earlier this year, and this had resulted in less product moving from its Singapore plant to Europe.

It was heard that ExxonMobil lowered the operating rates at its Group II production line on Jurong Island, Singapore, to around 80 percent in early July to produce more fuels, but this could not be confirmed with the producer directly.

The trimmed operating rates were also said to be in response to better margins for the production of gas oil instead of base stocks, although prices have fluctuated over the last few weeks.

Industry experts estimated the global run rates to be averaging 75 percent at present due to prevailing market conditions.

Additional producers were also heard to have either cut operating rates at their base stock plants, such as Hyundai Oilbank-Shell in South Korea, or be mulling possible cutbacks, including producers Formosa Petrochemical in Mailiao, Taiwan, and GS Caltex in Yeosu, South Korea.

However, the impact of the cutbacks were not expected to be evident overnight, and it may take some time before the market can regain a more balanced position.

Increased supply levels in the key market China – thanks to the start-up of new facilities earlier this year, and more expected to come on stream in the second half – were also contributing to a slowdown in demand for imports from Chinese end-users. South Korean and Taiwanese producers are the main source of Group II imports to China, and have therefore been more impacted by the new production there.

Half of the projected capacity has already come on stream in China this year, market experts noted at a recent industry event, and more are in the pipeline, with producer Hainan Handi Petrochemical expected to bring its Group II/III 800,000 metric tons per year expansion on stream in the fourth quarter.

At the same time, suppliers entertained hopes that demand would improve in the coming months, as the third quarter typically registers a seasonal uptick in requirements in Asia, and the monsoons should soon be over in India, leading to increased activity there as well. The monsoon season runs from June to September.

On the other hand, availability of Group I cargoes was deemed on the snug side, as the net shortage of Group I barrels in the region was exacerbated by the lack of exports from Iran due to additional international sanctions on its financial transactions and oil exports. India regularly imports large quantities of Iranian Group I base oils, but trading appeared to be drastically reduced, although Group I/II exports from Saudi Arabia may be making up for some of the missing barrels.

Tensions between Iran and Western nations escalated this week as a British-flagged oil tanker was seized by Iran, reportedly in retaliation for the seizure of an Iranian oil tanker in Gibraltar earlier this month.

Oil futures recovered lost territory on Thursday, but the gains remained capped by concerns about weak manufacturing data, sluggish global demand growth and ongoing geopolitical turmoil in the Middle East.

The upside was also limited by reports that Saudi Arabia, swing-producer for the Organization of the Petroleum Exporting Countries, had met with Kuwaiti officials to discuss a potential increase in oil production in the southern neutral zone.

Brent September futures were trading at $63.25 per barrel on the London-based ICE Futures Europe exchange on July 25, and were hovering at $63.69 on July 18.

Spot base oil prices were largely flat, with buyers and sellers starting to discuss August shipments and little fresh input about pricing forthcoming during the week.

Ex-tank Singapore Group I prices for the solvent neutral 150 grade were assessed as unchanged at $740-$760/t, while the SN500 was at $790/t-$810/t. Bright stock was adjusted down by $20/t to bring prices more in line with market values at $880/t-$900/t, all ex-tank Singapore.

Group II 150 neutral was heard at $780/t-$800/t, while the 500N was steady at $790/t-$820/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was holding at $610/t-$630/t, and the SN500 grade was unchanged this week at $600/t-$620/t. Bright stock was hovering at $770/t-$790/t, FOB Asia.

Group II 150N was heard at around $590/t-$610/t FOB Asia, while the 500N and 600N cuts were gauged at $610/t-$630/t, FOB Asia.

In the Group III segment, the 4 centiStoke grade was holding at $800-$830/t and the 6 cSt at $820/t-$865/t. The 8 cSt grade was assessed at $710/t-$740/t, FOB Asia for fully-approved product.

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.