Asia Base Oil Price Report

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Market participants were keeping an anxious eye on crude oil and feedstock prices, as climbing indications over the last few weeks have squeezed base oil margins and resulted in higher numbers.

The relentless rise in crude oil has taken values to three-year highs, but futures began to slip this week on news that the Organization of Petroleum Exporting Countries would discuss the possibility of phasing out supply curbs when they meet next month.

The decision would be aimed at filling potential supply gaps emerging from renewed United States sanctions on Iran, and reduced output in Venezuela due to the countrys economic woes.

On Thursday, May 24, Brent July futures were trading at $79.11 per barrel on the London-based ICE Futures Europe exchange, slightly lower than $79.38 per barrel on May 17.

Base oil prices have also been edging up in the United States and Europe, with a majority of U.S. producers implementing posted price increases during the month of May, and export indications climbing week-on-week in Europe.

However, it was also heard that at least a couple of API Group II producers in the U.S. had some extra volumes of heavy-viscosity grades, and were offering competitive prices for large spot export transactions.

Tightening supplies of a number of base oil grades in Asia propped up prices in the region, with Group II cuts in particular expected to remain snug over the next few weeks. This was partly the result of ongoing and upcoming plant turnarounds.

There were unconfirmed reports that South Korean producer S-Oil had shut down its base oil unit in Onsan earlier this week. The plant can produce 1.04 million metric tons per year of Group II and close to 1 million t/y of Group III oils, according to LubesnGreases Guide to Global Base Oil Refining. The unit had experienced a partial turnaround in March, and it could not be ascertained whether this shutdown was related to maintenance, or a mechanical issue.

In Taiwan, Formosa Petrochemical was also getting ready for a routine turnaround at its Group II plant in Mailiao, starting in July. The unit can produce 600,000 t/y of Group II base oils. Formosa has begun to build inventories and to reduce some of its contractual shipments to China in order to prepare for its two-month shutdown. The producer was expected to suspend spot sales during the next few months as well as it prioritizes supply to long-term contract customers, sources noted.

Meanwhile, Chinese buying needs appear to be well-covered as the country had imported a high volume of base oils in March, following the Lunar New Year holidays, and inventories were still heard to be fairly adequate.

Most Chinese base oil plants were also understood to be running at normal rates, with the exception of Shandong Hengrundes Group II plant in Shandong, which was expected to be taken off-line for maintenance at the end of the month. The unit can produce 200,000 metric tons per year of Group II base oils and was likely to be down until late June.

In India, it was heard that there has been a steady influx of Middle East Group III material, with United Arab Emirates producer Abu Dhabi National Oil Co. expected to have shipped over 25,000 metric tons of API Group III oils this month from its plant in Ruwais.

Adnoc has become a regular supplier of crude oil and refined products to many customers and partners in India, and it celebrated the unloading in Mangalore of the first crude oil cargo sent to Indian Strategic Petroleum Reserves Ltd. on May 21, Adnoc stated in a press release. The cargo was loaded in Abu Dhabi and arrived in Mangalore after a six-day voyage.

Indias energy, fuel and lubricant requirements are expected to continue growing at a steady pace over the next twenty years. The countrys energy demand is forecast to increase by more than any other country in the period to 2040, according to the International Energy Agency, propelled by an economy that will grow to more than five-times its current size, and by a population growth that will make it the worlds most populous country. Indian energy consumption is expected to more than double by 2040, accounting for 25 percent of the rise in global energy, and the largest absolute growth in oil consumption, the Adnoc press release noted.

Meanwhile, Asian base oil spot assessments were stable-to-firm this week, with some cuts undergoing upward revisions on the back of firm crude oil and raw material costs.

In terms of ex-tank Singapore numbers, Group I SN150 was assessed at $780/t-$800/t, while the SN500 was steady at $900/t-$920/t. Bright stock was also unchanged at $960/t-$980/t, all ex-tank Singapore.

Group II 150 neutral was notionally adjusted up by $10 to $820/t-$850/t, and the 500N cut was heard at $910/t-$930/t ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was stable at $700/t-$720/t, with the SN500 also steady at $850/t-$870/t. Bright stock was slightly up by $10/t at the lower end of the range at $880/t-$900/t FOB Asia.

Group II 150N was unchanged at $750/t-$770/t, while the 500N/600N was up by $10/t at $830/t-$860/t, all FOB Asia.

In the Group III segment, the 4 centiStoke and 6cSt grades were unchanged at $880-$900/t and $860/t-$880/t, respectively. The 8 cSt was notionally up by $10/t at $770/t-$790/t, FOB Asia.

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

LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.

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