Asia Base Oil Price Report


Asia base oil prices plunged to new lows, following further drops in crude oil and feedstock values and a downbeat outlook for the coming weeks.

Brent futures slid to levels around U.S. $47 per barrel during the week, underpinning concerns that base oil prices could also continue softening.

As a result, buyers interested in replenishing stocks following the year-end holidays countered with low offers, which sellers were reluctant to accept, as selling indications had already been trimmed substantially.

Those consumers who still held a reasonable level of stocks preferred to stay away from the trading scene to observe developments before making a decision to secure more product, which resulted in muted activity during the week.

This was the case for buyers in India, where local supply was considered to be abundant, domestic prices have been declining, and very competitive offers for imported cargoes were encouraging buyers to wait instead of accepting the first offer that fell into their lap.

API Group II prices have been on par with comparable Group I grades in India, but few transactions were heard concluded, despite the large drop in prices.

Solvent neutral 150 price indications have plummeted to levels around $620-670 per metric ton CFR India, while SN500 was near $630-680/t CFR India. Bright stock offers were heard near $900/t CFR India this week.

Aside from fundamentals that directly affect base oil pricing – such as crude oil and feedstock costs – and the current supply/demand imbalance, geopolitical tensions on a global level and pessimistic prospects for economic growth in key markets such as China also weighed on base oil prices.

Buying interest for Group I cargoes in China has seen some improvement, sources said, although it is far from being robust, and some Group I cuts continued to be replaced with Group II oils, which were priced similarly to their Group I counterparts given ample supply.

Bright stock continued to be a bit of an exception in that demand has not receded as significantly as for other Group I grades, but prices have also come under fire because of weak fundamentals, particularly in the Chinese market.

Bright stock prices for imports of Southeast Asian product were heard discussed at around $1,000-1,030/t FOB Asia, with the low end reflecting buying ideas.

Other cuts in the Group I family saw dramatic drops this week, with prices dipping below the $600/t FOB Asia mark.

Likewise, Group II values underwent sharp downward revisions, with the 150 neutral grade also being quoted at and slightly above $600/t FOB Asia.

Group II prices are expected to continue exposed to downward pressure and drag Group I prices down given the increased Group II capacity that came on stream in 2014 and the added volumes that are expected to hit the market in 2015.

The Hyundai Oilbank-Shell joint venture in South Korea brought 650,000 metric tons per year of product in the second half of 2014, with a large portion destined to supply China.

An estimated (but unconfirmed) 400,000 t/y additional product is also expected to be introduced from ExxonMobils expanded unit in Singapore in the first quarter, and China National Offshore Oil Corporation (CNOOC) is also anticipated to start up a new plant in Taizhou, Jiangsu province, China, with a capacity of 600,000 t/y Group II base oils some time this year, according to industry sources. Construction of this project started in June 2012.

Group II availability is likely to tighten somewhat in March, when Taiwanese producer Formosa is expected to shut down its 600,000 metric tons per year Group II plant in Mailiao for a month and a half to complete a maintenance program. But whether demand will have strengthened enough to tighten the supply/demand balance is still a question.

Most Asia base oil prices have been revised down this week, reflecting producers list price decreases over the last two weeks, lower spot bids and offers, and declining published numbers widely regarded as industry benchmarks.

On an ex-tank Singapore basis, Group I solvent neutral 150 prices were assessed down by $10-20/t at $760-$790/t, and SN500 by $20/t at $750-$790/t. Bright stock was assessed unchanged at $1,110-$1,130/t.

Group I SN150 was revised down by a hefty $90/t to $580-$620/t FOB, while SN500 was heard lower by $80-90/t at $570-$610/t FOB. Bright stock prices were assessed down by $70/t at $1,000-$1,030/t FOB.

Within the Group II segment, prices were assessed lower by $20-40/t at $600-$640/t FOB Asia for 150 neutral, and down $30/t for 500N at $620-$650/t FOB Asia.

Group III prices were unchanged after undergoing a downward revision the previous week, with the 4 centiStoke and 6 cSt oils at $980-$1,000/t FOB Asia and the 8 cSt grade at $880-$900/t FOB Asia. This segment of the market has seen the least erosion in terms of pricing in comparison with the other two groups, likely because of a smaller number of producers and more specialized applications.

On the shipping front, discussions were somewhat thin, with only a handful of parcels expected to change hands from South Korean suppliers to buyers in China and India. A 3,500-metric ton lot made up of two base oil grades was being worked on from Yeosu to Nantong, China, for Jan. 16-29 lifting. A 2,000-ton cargo of 600N was on the table for Yeosu to Dongguan, China, for Jan. 25-29 shipment. A 1,000-ton parcel was expected to be shipped from Korea to South China around Jan. 25-30. A 4,500-ton lot was being quoted from Yeosu to Mumbai, India, for Jan. 20-27 shipment.

Lastly, a 4,000-ton cargo was on the table from Portugal to East Coast India and/or China for end of January/early February lifting.

Upstream, February ICE Brent Singapore futures were trading at U.S. $49.43 per barrel in afternoon trading on Jan. 19, compared to $48.62 per barrel on Jan. 12.

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