Asia Base Oil Price Report

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Spot base oil prices in Asia were reported as stable to soft, with ample supply, adequate inventories and slipping crude oil prices driving a few indications down.

Producers margins were compressed by spiking crude oil and feedstock values in late September and early October. While weakening crude oil prices have offered some relief, suppliers said that margins had not yet reached a satisfactory level, and hoped to be able to stem a downward spiral of base oil prices.

At odds with the general price trend observed in Asia, domestic list prices in Taiwan experienced an increase, implemented by the local producer, Formosa Petrochemical Corp., for November shipments of its API Group II base oils. It was thought that the increases were driven by a need to recover lost margins when crude oil and raw material prices had risen to four-year highs a few weeks back, together with a stronger dollar versus the local currency.

Formosa produces Group II base oils at its 600,000 metric tons per year plant in Mailiao, and supplies not only the domestic market in Taiwan, but also exports large quantities to China and other destinations.

The producer was heard to have marked up the price of its Group II 70 neutral grade by New Taiwan Dollars (NT$) 1.06 per liter. Formosa also lifted the price of its Group II 150N by NT$0.26/liter, while the price of its 500N cut climbed by NT$0.32/liter for November transactions.

Formosa was also heard to be planning to export higher volumes of base oils to China in November compared with October, and quantities will be significantly up from September, when the producer was starting to build inventories, following a two-month turnaround.

Base oil trading in China and India have been dampened by currency depreciation and lower demand in downstream lubricant markets, sources said.

Most end-users in China were consuming existing inventories and were only purchasing material needed to keep day-to-day operations running.

The availability of Group I bright stock, in particular, was said to be plentiful as importers had stocked up in early October, when prices for Southeast and Northeast Asian exports were quite attractive, and buyers were therefore not in the market for additional volumes.

A majority of consumers in Asia prefer to work down stocks during November and December to avoid tax repercussions on high inventories at the end of the year.

There were also reports that base stock producers in Taiwan, South Korea and Singapore have cut operating rates by around 10-15 percent in order to manage inventories. A majority of Chinas base oil imports originate in these countries.

Additionally, activity in India was subdued this week due to the observance of the Diwali holiday. The Festival of Lights was celebrated in most parts of India on November 7.

Spot prices continued to be exposed to downward pressure given market conditions, and some ranges were therefore revised down on current transactions and discussion levels.

Ex-tank Singapore numbers for Group I solvent neutral 150 were unchanged at $760 per metric ton to $780/t, and the SN500/SN600 cuts were hovering at $840/t-$860/t. Bright stock was adjusted down by $20-25/t to $870/t-$890/t, all ex-tank Singapore.

Group II 150 neutral was heard at around $795/t-$825/t and the 500N at $870/t-$890/t ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was steady at $700/t-$720/t, while SN500 was lower by $10/t at $780/t-$800/t. Bright stock was assessed at $820/t-$840/t FOB Asia.

Group II 150N was heard at $730/t-$750/t FOB Asia, while 500N and 600N were notionally down by $10/t at $780/t-$800/t FOB Asia.

In the Group III segment, 4 and 6 centiStoke grades were steady at $860-$880/t and $840/t-$860/t, respectively, while the 8 cSt was unchanged at $750/t-$770/t, FOB Asia.

Upstream, crude oil prices dropped for a ninth consecutive session on Thursday, on signs of growing global supply and increased oil production in the United States, where output is predicted to reach 12 million barrels per day by mid-2019.

The price decline was also evident earlier this week after President Donald Trump announced the U.S. would issue waivers to eight countries, including China, India, South Korea, Japan, Italy, Greece, Taiwan and Turkey, allowing them to continue importing Iranian oil for the next 180 days. Washington restored sanctions on Irans energy, banking and shipping industries on Monday.

Chinas October crude imports had hit a record level of 9.61 million barrels per day, possibly as the country was preparing for the re-instatement of U.S. sanctions on Iran.

On Thursday, Nov. 8, Brent January futures were trading at $70.87 per barrel on the London-based ICE Futures Europe exchange, down from $72.89/bbl on Nov. 1.

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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