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January 24, 2020

Volume 7 Issue 8

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Asia Base Oil Price Report

With the official start of the Lunar New Year on Jan. 25, activity in the base oil market remained subdued, although the government in China was trying to limit festivities and travel on concerns for the spread of the coronavirus.

This week marks the peak of the spring season, which sees the highest number of people on the move, as millions of Chinese travel to their home towns or to see family for Lunar New Year festivities. This represents a virtual nightmare for health officials.

China took dramatic measures Thursday to stop the spread of the virus by halting travel from Wuhan, the city of 11 million at the center of the outbreak, CNN.com reported. Outbound flights and rail service from the city have been suspended, as well as travel by bus, subway and ferry. Public gatherings through the holiday period have been forbidden. Across the nation, office buildings, shopping malls and casinos starting screening individuals for a fever before allowing them to enter.

Aside from China, the Lunar New Year is celebrated in other Asian nations and as a result, trading was muted across the region and prices remained largely unchanged.

Despite efforts by base oil producers to increase spot prices ahead of the holiday, the ample availability of product and tepid demand from downstream segments posed a challenge to any initiatives that suppliers may have undertaken.

Producers commented that margins have been compressed for some time, and the recent jumps in crude oil pricing have squeezed margins further. While crude prices have come down slightly, the pressure is still there because changes do not happen overnight, sources said.

In Japan, participants were somewhat puzzled that producers reduced the price of base oils for Q1 2020. JXTG Nippon Oil & Energy Corp., which sets the benchmark for base oil prices for the domestic Japanese market, lowered the price by Japanese Yen 0.9 per liter to Yen 92.86/liter, reflecting the average crude oil import costs into Japan. South Korean refiners, which export to Japan, followed suit and also reduced their Q1 2020 prices by Yen 3-4/liter, on the back of a similar reduction of Yen 3-4/liter in Q4 2019, market sources said.

The implementation of the new IMO 2020 rules has greatly impacted the ow sulfur fuel oil market as prices have shot up, offering an incentive for refiners to manufacture this product in detriment to base oil output. "Japanese refiners are taking advantage of this situation and they keep cutting back on less profitable base oil production," a source commented.

However, base oil demand in Japan appears to be declining and this is offsetting the base stock production cuts. "Overall domestic lubricants demand in Japan continues to fall, forcing refiners to look for outlets in the overseas market. This trend will not change in the foreseeable future," a source predicted.

Japanese producers were not the only market players looking for additional outlets for their products. Since United States base oil suppliers have implemented posted price increases of around 30 cents per gallon this month, or an equivalent of about $90 per metric ton, Asian spot prices have become more attractive.

This could lead suppliers to look for opportunities in the U.S., or to ship product to Brownsville, Texas, for the Mexican market, sources said. Parcels of API Group II light-viscosity grades from at least two South Korean suppliers and a Taiwanese producer have been detected in that hub last year, but one of the main problems is the lack of storage there, sources noted. Whether Asian suppliers will attempt fresh shipments and make numbers work remains to be seen.

With Group III turnarounds scheduled in Europe in the first and second quarter, there could be some tightening of supply in that region, offering opportunities to Asian exporters too.

Meanwhile, Middle East producers were heard to continue shipping product to China and India, despite these markets being well-supplied at the moment. A number of Group I and II cargoes were expected to be shipped this month to India, while Iranian material, which has by and large been forbidden from being exported due to U.S. sanctions, appears to be trickling into India through re-exporting movements.

Adnoc was heard to be regularly shipping Group III cargoes to China, although quantities vary. A larger cargo was expected to load in January and a smaller one in February, likely due to reduced demand during the Lunar New Year celebrations.

As mentioned above, base oil spot prices in Asia were generally unchanged week on week due to the absence of players, subdued buying interest and adequate-to-ample supply.

Ex-tank Singapore Group I prices for the solvent neutral 150 grade were stable at $680/t-$700/t, and the SN500 was at $730/t-$750/t. Bright stock was assessed at $820/t-$840/t, all ex-tank Singapore.

The Group II 150 neutral and 500N were holding at $720/t-$740/t and $730/t-$750/t, respectively, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was unchanged from the previous week at $540/t-$570/t, and the SN500 grade was heard at $550/t-$560/t. Bright stock was stable at around $700/t-$720/t, FOB Asia.

Group II 150N was assessed at $570/t-$590/t FOB Asia, while the 500N and 600N cuts were steady at $590/t-$610/t, FOB Asia.

In the Group III segment, the 4 centiStoke and 6 cSt were heard at $770-$800/t and $780/t-$825/t, respectively. The 8 cSt grade was assessed at $720-740/t, FOB Asia for fully approved product.

Upstream, crude oil futures lost territory on reports by the American Petroleum Institute of a surprise inventory built in the U.S. Values slipped despite continued unrest in Iraq and significant oil production disruptions in Libya. Concerns about an economic slowdown due to the potential spread of the deadly coronavirus in China, whose presence has now been confirmed in other countries such as the U.S. and Japan, also weighed on prices.

On Thursday, Jan. 23, Brent March futures were trading at $62.37 per barrel on the London-based ICE Futures Europe exchange, compared to $64.09/bbl on Jan. 16.

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. 

Historic and current base oil pricing data are available for purchase in Excel format.