This situation appears to stem from the recent climb in crude oil and feedstock values, as buyers seem concerned that base oil prices might increase, too, and are therefore securing product ahead of potential hikes.

The other element that is placing upward pressure on base stocks is a cutback in production by regional producers in favor of transportation fuels. Given improved prices of gasoline and diesel over the last few weeks, some refiners are diverting feedstocks into production of these products as margins were said to be better than for base oils.

One of these refiners was understood to be Formosa Petrochemical, who operates a 600,000 metric tons per year API Group II plant in Mailiao, Taiwan.

Formosa was expected to trim its Group II base oils output to produce more gasoline over the next several weeks, and as a result, spot availability of base stock is expected to be limited, offering support to stable price indications.

The steeper crude oil prices and more limited availability from the local producer were expected to lead to stable domestic values in Taiwan. Formosa had previously marked down domestic list prices in September and October, but was anticipated to leave pricing unchanged in November, according to sources.

Aside from tighter spot availability in the local market, the producer’s plans were also likely to result in reduced supply of base oils to China in November. China typically imports a large portion of Formosa’s Group II production – approximately 40,000 metric tons per month – but November shipments were heard to have been cut by a quarter from the regular volumes.

At the same time, general base oil demand in China has softened because of ample availability of certain grades, with the heavy-viscosity cuts said to be particularly plentiful.

Within the Group I segment, bright stock is bearing the brunt of the price decline, with bids and offers sliding in recent weeks and causing a general decrease of FOB Asia price indications in the realm of between U.S. $10 per metric ton and $20/t from late October.

Aside from increased supply from local producers due to improved operating rates or new capacity, the heavy grades are more available because demand tends to weaken with the arrival of winter, when blenders produce lighter formulations, and as such, price ideas also have come under pressure.

One of the producers in China who is expected to start production in November is China National Offshore Oil Corp. (CNOOC), whose new base oil plant in Taizhou is slated to begin streaming naphthenic oils in early November and paraffinic oils later in the month. The plant will have capacity to produce 200,000 t/y of naphthenic base oils and 400,000 t/y of paraffinic Group II oils, according to LubesnGreases Global Guide to Base Oil Refining.

At the same time, an imminent turnaround at S-Oil’s Onsan plant in South Korea is expected to result in tightening supplies in the region. The producer was heard to have built inventories ahead of the outage, which is expected to start in mid-November, but spot availability is anticipated to be reduced nonetheless. It was unclear which grades would be affected by the outage, as the producer manufactures Group I, II and III base oils at the plant, with a total capacity of over 2 million t/y. Further details could not be obtained from the producer directly.

The conditions described above have rendered fairly stable base oil spot assessments in Asia this week, although a couple of cuts have been adjusted down to reflect current bids and offers as buyers continue to push for price reductions and suppliers try to protect market share.

On an ex-tank Singapore basis, API Group I solvent neutral 150 was assessed between $585/t-$605/t, while the SN500 was holding at $665/t-$695/t. Bright stock was adjusted down by $20/t to $910/t-$930/t on plentiful availability.

The Group II 150 neutral was heard at $585/t-$605/t, and 500N was hovering at $760/t-$780/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was holding at $470/t-$490/t, while the SN500 edged down by $15/t to $570/t-$590/t. Bright stock was down by $10/t at $770/t-$790/t.

In the Group II category, 150N was steady at $480/t-$500/t, although buyers were hoping to achieve levels near $470/t and below, while 500N/600N was down by $10/t at the low end of the range at $635/t-$665/t, all FOB Asia.

Two cuts in the Group III tier were assessed down as November negotiations were taking place at lower price levels due to ample availability, while a third cut remained stable. The 4 centiStoke and 6 cSt oils were heard down by $10-20/t at $770/t-$810/t, FOB Asia, and the 8 cSt grade was holding at $650/t-$670/t FOB Asia.

Upstream, crude oil prices edged higher after sliding earlier in the week as reports emerged of an unexpected drop in U.S. crude inventories stored at the Cushing, Oklahoma, delivery hub.

Additionally, the energy ministers from Saudi Arabia and its Gulf allies told their Russian counterpart that they would be willing to reduce their peak oil output by up to 4 percent, encouraging hopes of a production cut agreement before the end of the year.

ICE Brent Singapore December futures were trading at U.S. $49.66 per barrel on Oct. 31, compared to $51.94/bbl on Oct. 24.

Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.

LNG Publishing shall not be liable for commercial decisions based on the contents of this report.