Improved activity levels and steeper crude oil values lent support to base oil prices in Asia, with an additional nudge coming from potential reductions in base stock production rates and plant turnarounds.
Buyers were gradually returning to the market, following the Lunar New Year holidays, and discussions have started to warm up. Producers were counting on the last few days of February and first week of March to yield numerous fresh transactions. If demand continued on an upswing, suppliers hoped that the trend would further prop up pricing in coming weeks.
Brent crude has jumped from around $60 per barrel in early February to above $67 per barrel this week, boosted by reports of production cuts from the Organization of the Petroleum Exporting Countries and non-OPEC countries, and a reduction in exports from Iran and Venezuela due to United States sanctions.
However, oil futures slipped early Thursday on concerns about a lack of progress in U.S.-China trade talks, and on skepticism that OPEC supply curbs would be sufficient to offset the shale boom in the U.S.
On Feb. 21, Brent April futures were trading at $66.88 per barrel on the London-based ICE Futures Europe exchange, up from $64.43/bbl on Feb. 14.
While base stock producers mentioned the increase in crude oil numbers as an essential element to be considered when pricing base oils, the fact that upstream fuel products would also offer better returns was another factor that played an important role in the mix. Base oil producers may opt for streaming raw materials into fuels such as gas oil instead of base oils, reducing production rates and availability of certain grades.
Indeed, a number of producers had trimmed output rates to around 80 to 90 percent back in October and November due to a similar price scenario, and this could once again prove to be a more beneficial route for refiners in the current market atmosphere.
There was also talk about a turnaround scheduled at a plant in South Korea, while maintenance was also expected to be carried out at some facilities in Japan, although further details were not forthcoming.
Buyers reported ample availability of most base oil cuts, with the heavy-viscosity API Group I and II grades said to be slightly tighter than the light-vis oils. Some Group I cuts may also be a bit more difficult to source due to tightening supply from traditional spot suppliers such as Thailand and Japan, while U.S. sanctions on Iran have restricted Group I exports into India and Middle East destinations.
India continues receive large amounts of Group II base oils from diverse origins, namely the United States, South Korea and the Middle East. It was heard that the producer in Ruwais had concluded some shipments of Group II and III oils, but was hoping to place more cargoes into China than India as returns appeared more attractive.
However, the market in China was said to be exposed to downward pressure due to the additional product expected to come on-stream in the first quarter from new base oils units such as Hengli Petrochemicals and Hainan Handi Sunshine Petrochemicals Group II/III plants.
Furthermore, prospects for automotive lubricants in China were less encouraging than in years past as the worlds biggest auto market contracted for the first time since the 1990s last year, and will likely face tough challenges in 2019, including the ongoing U.S.-China trade dispute,
Chinas Association of Automobile Manufacturers reported.
China car sales dropped 13 percent in December – the sixth straight month of declines – bringing annual sales to 28.1 million, down 2.8 percent from a year earlier. The sales decline was partly attributed to the phasing out of purchase tax cuts on smaller cars, the car association said.
U.S. suppliers have been actively pursuing opportunities in China, India and the Middle East to find new outlets for their Group II base oils as ExxonMobil announced the start-up of its new Group II unit in Rotterdam, The Netherlands, this week, and will likely require fewer U.S. exports of Group II base oils to feed its downstream operations in Europe.
Similarly, Asian participants also expected more Group II barrels to become available from Singapore starting in the second quarter as the refiner would be requiring fewer Group II intra-company cargoes moving to Europe.
Aside from announcing that its new base stock plant had begun commercial production, the company has also said in the past that it plans to complete a base oil hub terminal in Hamburg, Germany, in the third quarter, and has planned to build another terminal in Valencia, Spain, to facilitate transportation and export transactions.
As far as spot prices in Asia were concerned, numbers underwent little change from a week ago as participants resumed trading following the Lunar New Year holidays, and were still trying to evaluate conditions. A couple of grades were revised down so as to bring prices more in line with current discussion levels.
Ex-tank Singapore assessments for Group I solvent neutral 150 were holding at $740-$760/t per metric ton, while SN500 was unchanged at $750/t-$790/t. Bright stock was also steady at $870/t-$890/t, all ex-tank Singapore.
Group II 150 neutral was heard at $750/t-$800/t and 500N at $760/t-$810/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed at $650/t-$690/t, while the SN500 was revised down by $20/t to $600/t-$620/t. Bright stock was hovering at $780/t-$800/t, FOB Asia.
Group II 150N was steady at $590/t-$610/t FOB Asia, while the 500N and 600N cuts were adjusted down by $20/t to $600/t-$620/t, FOB Asia.
In the Group III segment, the 4 centiStoke grade was holding at $820-$860/t and the 6 cSt at $830/t-$880/t. The 8 cSt grade was steady at $710/t-$740/t, FOB Asia for fully-approved product.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.