Activity was gradually starting to pick up in Asia as market players returned to business following the Lunar New Year holidays that began on Feb. 15.
Both buyers and sellers were wary of potential price fluctuations in crude oil prices, as numbers have been volatile in recent weeks, falling sharply from four-year highs two weeks ago, and rebounding again this week.
Oil futures edged higher on Thursday after government data showed an unexpected drop in U.S. crude inventories last week. A cold snap in Asia also boosted oil prices as demand for refined products increased.
Brent futures rose by 1.5 percent and settled at $66.22 per barrel on Thursday, Feb. 22, on the London-based ICE Futures Europe exchange, compared to $64.99 per barrel on Feb. 15.
The steep crude oil values over the last three months translated into higher base oil price indications from most origins in the weeks leading to the Lunar New Year holidays.
This week, however, discussions were somewhat subdued as buyers were evaluating market conditions and potential product needs.
A number of cargoes were secured before the festive period to be delivered in the first half of February, but some consumers preferred to wait until after the holidays to purchase fresh cargoes and were therefore expected to return to the market over the next few days.
Importers in China were also likely to be busy securing cargoes, with imports from Europe anticipated to take a back seat because prices were not considered as competitive at the moment.
Cargoes from the Middle East, however, were expected to gain a more prominent role in the region in the next few months, particularly as more capacity has come on stream.
Luberef has completed the upgrade and expansion of its base oil plant in Yanbual Bahr, Saudi Arabia, and the company is now be able to produce API Group II base oils, with cargoes likely to be exported to various destinations in Asia. The Yanbu plant has capacity to produce 175,000 metric tons per year of Group I and 708,000 t/y of Group II base oils, according to LubesnGreases Guide to Global Base Oil Refining.
Adnoc has already been an active exporter of Group III oils into China as well. Adnoc operates a plant in Ruwais, United Arab Emirates, which can produce 100,000 t/y of Group II and 500,000 t/y of Group III base oils.
Middle East supply was expected to mitigate some of the tightening caused by upcoming turnarounds at a couple of Asian base oil facilities. These include S-Oils unit in Onsan, South Korea, SK Lubricants plant in Ulsan, South Korea, Petronas plant in Melaka, Malaysia, and Formosa Petrochemicals facilities in Mai-Liao, Taiwan.
SK Lubricants Group II/III facilities were heard to be scheduled for a one-month turnaround in early March. SKs unit has capacity of 701,000 t/y of Group II base oils and almost 1.3 million t/y of Group III cuts.
There were also reports that South Korean producer S-Oil would idle its Group III plant in Onsan for one month in March. S-Oils unit has a capacity to produce 1 million t/y of Group III base oils.
Petronas plant in Malaysia, which can produce 268,000 t/y of Group III base oils, was expected to be taken off-line in late March for a turnaround as well.
In the second half of the year, Formosa Petrochemicals Group II plant was heard to have been slated for maintenance. The program was expected to start in July and last one month. Formosas plant has capacity of 600,000 t/y of Group II oils.
All of these maintenance shutdowns were anticipated to tighten the market at a time when demand would be generally healthy due to the start of the spring season.
In related market news, Chinas National Development and Reform Commission announced a reduction in the retail price of domestic fuel as of Feb. 10, the first time prices have been lowered this year. The retail prices of gasoline and diesel dropped by Chinese Yuan (CNY) 170 per ton (approximately U.S. dollars $27/t) and CNY 160/t (or $25/t), respectively, as of Feb. 10, to reflect falling international crude prices, local media outlet Xinhuanet reported.
Under the current pricing mechanism, if international crude oil prices change by more than 50 yuan per ton and remain at that level for 10 working days, the prices of refined oil products such as gasoline and diesel will be adjusted accordingly.
The price of gasoline in China can impact demand for lubricants and base oils as consumers tend to drive less when values go up.
Meanwhile, base oil spot prices in Asia were assessed as largely steady from a week ago, as active trading has just resumed and there were few concluded transactions reported.
On an ex-tank Singapore basis, Group I SN150 and SN500 were heard at $730/t-$750/t, and $840/t-$860/t, respectively. Bright stock was unchanged at $920/t-$940/t, all ex-tank Singapore.
Group II 150 neutral was assessed at $750/t-$770/t, and 500N was at $900/t-$920/t ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was unchanged at $670/t-$690/t, and the SN500 grade was holding at $780/t-$800/t, FOB Asia. Bright stock was heard at $830/t-$860/t.
Group II 150N was assessed at $690/t-$710/t, and the 500N/600N at $790/t-$830/t, all FOB Asia.
In the Group III segment, the 4 centiStoke and 6 cSt grades were holding at $800/t-$820/t, and the 8 cSt at $780/t-$800/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.