Crude oil numbers tumbled early Wednesday after the United States Energy Information Administration reported a larger-than-expected 6.8 million barrel build in U.S. crude inventories. Analysts polled by S&P Global Platts had forecast an inventory decline of 1.7 million barrels for the period.

Additionally, reports showed that oil demand China and India have been growing at a slower pace this year than before, and analysts expect trade tensions, emerging-market currency weakness, and sanctions on Irans oil to further slow down economic and oil demand growth, OilPrice.com reported.

On Thursday, Aug. 16, Brent October futures were trading at $71.16 per barrel on the London-based ICE Futures Europe exchange, from $72.07 per barrel on Aug. 9.

General upstream market volatility, coupled with uncertainties in downstream lubricant markets, have yielded a more subdued tone for spot base oil negotiations.

Aside from the slower demand typical of the summer season, regional problems such as the monsoons and flooding in India resulted in reduced buying interest and transportation issues for a number of products against growing producer inventories.

Despite these more localized issues, sources noted that there have been no unexpected major events to absorb some of the product overhang. For example, last year, following the unplanned shutdown of the Shell/Qatar Petroleum gas-to-liquids Pearl refinery in Qatar, the API Group III segment had experienced some tightening.

Similarly, after a number of hurricanes pummeled the U.S. Gulf Coast and damaged several base oil plants during the second half of the year, there was a global dearth of Group II barrels.

The fall of spot prices in key markets such as China has led to reduced volumes moving there from the Middle East, a source commented. There had been large amounts of Group III moving to China from the Middle East up until May, but prices in China have dropped and numbers do not seem to be workable for Middle Eastern cargoes to move there now, the source added.

Another factor that participants were keeping an anxious eye on was the trade war currently taking place between China and the U.S.

Chinese tariffs of 25 percent on $16 billion worth of U.S. goods are scheduled to go into effect Aug. 23. The list of goods affected by the new tariff schedule includes lubricating oil and lubricating base oil, grease, paraffin wax (with or without coloring, less than 0.75 percent by weight of oil), microcrystalline paraffin (whether or not colored), other mineral waxes and similar products (either synthetic or otherwise, whether or not colored), among other oil-related products.

The announcement from Chinas Ministry of Commerce came a day after the U.S. disclosed its second list, which detailed which Chinese goods would be subject to 25 percent tariffs, also as of Aug. 23.

Previously, the U.S. had begun to apply tariffs on $34 billion of Chinese goods on July 6, with China responding with a similar move which called for tariffs on a similar amount of U.S. products.

As a result of the new tariff imposition on base oils, it was heard that many Chinese base oil buyers were staying away from securing U.S. cargoes and preferred to source product from other origins.

This may bring some benefit to regional suppliers like the South Korean producers, who may be able to place product there, instead of India.

South Korean producers have traditionally exported large quantities of base oils to India. However, given that the Indian market has seen an increase in the influx of Middle East material since early this year, buying appetite for northeast Asian cargoes had declined somewhat there.

Given current market conditions, spot base oil indications have softened in Asia, with a large producer lowering its ex-tank Singapore prices by as much as $35 per metric ton for at least one of its grades earlier in the week.

Spot assessments on an ex-tank Singapore basis have been revised, with Group I SN150 adjusted down by $20/t to $760/t-$780/t. The SN500/600 was trimmed by $30/t to $860/t-$880/t. Bright stock was cut by $35/t to $925/t-$945/t, all ex-tank Singapore.

Group II adjustments were more moderate, with the 150 neutral moving down $15/t to $805/t-$835/t, while the 500N was adjusted down by $20/t to $890/t-$910/t ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was lower by $10/t at $700/t-$720/t, while the SN500 was adjusted down by $20/t to $820/t-$840/t. Bright stock was also trimmed by $20/t to $850/t-$870/t FOB Asia.

Group II 150N was down by $10/t at $750/t-$770/t, while the 500N/600N was down by $10-20/t at $820/t-$840/t, all FOB Asia.

In the Group III segment, the 4 centiStoke and 6 cSt grades were lower by $10/t at $870-$890/t and $850/t-$870/t, respectively. Along the same lines, the 8 cSt was adjusted down by $10/t to $760/t-$780/t, FOB Asia.

In production news, PetroChina was reported to have started a turnaround at its plant in Karamay, China. The plant can produce 700,000 t/y of Group I and 600,000 t/y of naphthenic oils. The turnaround was anticipated to last approximately 45 days and was heard to be affecting the paraffinic lines only.

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

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