Crude oil prices dropped on news that the Organization of Petroleum Exporting Countries would be discussing the phasing out of supply cuts at their meeting in Vienna, Austria, next month. However, the production cuts will continue through at least June, according to media reports.

Oil futures also declined during the week due to rising crude oil stocks in the United States. On Thursday, May 31, Brent July futures were trading at $77.75 per barrel on the London-based ICE Futures Europe exchange, down from $79.11 per barrel on May 24.

While crude oil prices may have dropped in the last couple of weeks, producers still felt that there was a need to recoup margins, which have narrowed since the beginning of the year.

A potential tightening of the base oil market on the back of current and upcoming plant shutdowns was also seen as a factor that could potentially impact price ideas.

The API Group II segment, in particular, was expected to witness the effects of Formosa Petrochemicals plant turnaround slated for July.

Taiwanese producer Formosa was heard to be planning to shut down its 600,000 metric tons per year Group II base oil plant in Mailiao for routine maintenance from early July until late August. Formosa has begun to build inventories and to trim some of its contractual shipments to China in order to prepare for its two-month shutdown, while it is also expected to suspend spot sales.

In China, rumblings that Sinopecs Nanjing plant would be shutting down for maintenance in June also circulated. The unit can produce 200,000 t/y of Group II base oils, according to LubesnGreases Guide to Global Base Oil Refining.

Also in China, Shandong Hengrundes Group II plant in Shandong was expected to be taken off-line for maintenance this week, but this could not be confirmed. The unit can produce 200,000 t/y of Group II base oils and was likely to be down until late June.

There were also unconfirmed reports that South Korean producer S-Oil had shut down its base oil unit in Onsan last 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, and had undergone a partial turnaround in March.

These shutdowns at key production units in the region were anticipated to result in a tightening market scenario for the third quarter.

At the same time, sluggish demand from the downstream lubricant sector in key markets such as China were starting to exert downward pressure on base oil price indications.

Requirements for a number of grades was heard to be lacking strength, including a few Group I and II cuts, and this could eventually impact pricing in coming weeks, sources said, although most spot prices remained largely unchanged this week.

An increase in Group I imports to China from Russia, where production rates were heard to have improved following plant turnarounds and unexpected output issues, was also likely to result in improved availability of certain grades.

Higher import volumes of Group III oils from the Middle East were also anticipated to result in competitive situations with more established regional suppliers, although prices seemed to be holding at steady levels this week.

Spot prices on an ex-tank Singapore basis underwent no changes, with Group I SN150 assessed at $780/t-$800/t, and the SN500 at $900/t-$920/t. Bright stock was also steady at $960/t-$980/t, all ex-tank Singapore.

Group II 150 neutral was hovering at $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 unchanged at $850/t-$870/t. Bright stock was heard at $880/t-$900/t FOB Asia, although there was some downward pressure noted.

Group II 150N was gauged at $750/t-$770/t, while the 500N/600N was holding 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 stable at $770/t-$790/t, FOB Asia.

In related market news, Chinas National Development and Reform Commission announced an increase in fuel prices, which went into effect on May 26. The increase was due to rising crude oil values in international markets. The retail price of gasoline will go up by Chinese Yuan 260 per metric ton, while the price of diesel will increase by CNY250/t (or approximately U.S.$40/t and $39/t, respectively). Fluctuations in fuel prices influence driving patterns in China and can therefore have an impact on lubricant consumption.

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

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