The base oil market in Asia was chugging along, with prices reported as stable to soft, sellers evaluating market conditions, and buyers assessing purchase needs for the next several months.
Volatility in the upstream crude oil and feedstocks segments caused anxiety to both buyers and sellers, as margins were being squeezed, and sudden jumps in oil values meant that there was always the possibility that base oil prices might be adjusted up to improve margins.
Some buyers therefore considered offers very carefully and decided to purchase only small cargoes ahead of potential price swings, while others adopted a wait-and-see approach.
Crude oil futures fell on Wednesday, but recovered some territory in early trading on Thursday on a crude drawdown in the United States.
Oil prices had weakened over the week as concerns over a Middle East conflict have eased, oil production in the Gulf of Mexico resumed following Tropical Storm Barry, and worries continued over Chinese economic growth.
Brent September futures were trading at $63.69 per barrel on the London-based ICE Futures Europe exchange on July 18, and were hovering around $67/bbl on July 11.
Plentiful availability of most base stocks was dampening the chance that prices might leap overnight. Suppliers remained cautious about revising prices, but they did not want to lose market share in the current competitive environment, and some appeared willing to adjust prices to make numbers work.
Regional exports from South Korea, Singapore and Thailand were said to be ample to cover a large portion of requirements in those countries that depended on imports, and there were no major production issues reported except for planned turnarounds at facilities in Singapore, China and Japan currently taking place, or scheduled for the third quarter.
However, there were reports that a couple of major API Group II suppliers, including Formosa Petrochemical in Taiwan and S-Oil in South Korea, were considering the possibility of trimming operating rates in order to achieve more balanced supply/demand positions amid thinning margins.
There were also reports that ExxonMobil had reduced the operating rates at its Group II production line on Jurong island, Singapore, in early July, but there was no producer confirmation forthcoming.
Group II prices have been under pressure due to ample supplies in the region, with local list prices having been decreased by Formosa Petrochemical for its July shipments of base oils. Formosa was heard to have lowered its Group II 70 neutral grade by New Taiwan Dollars (NT$) 1.19/liter. The producer's Group II 150N was adjusted down by NT$1.09/liter, and its 500N by NT$1.37/liter.
There has also been a significant influx of product in Asia from the Middle East, although volumes moving into China have declined as new local production has come on stream this year. Adnoc was understood to be skipping shipments of Group III base oils to China in July, following an 8,000-metric ton cargo loaded in June.
Middle East producers probably have the most advantageous position in terms of production costs, since feedstock supply is next door to their base oil plants, they are operating large facilities, and other expenses are comparatively low, a source commented, making it difficult for producers in other regions to compete.
While most base oil segments were well-supplied, the Group III category showed the most abundant volumes, which placed pressure on price indications.
Some countries such as India, China and Indonesia have been increasingly taking Group III base stocks as regulations for automotive lubricants become more stringent and more high performance base oils are needed for the new lubricant formulations.
However, the Group III supply may be more abundant in India once Indian Oil brings its new Group III line on stream in the future (for more details, see "Indian Oil to Add Group III Production" in this issue of Lube Report Asia).
India has been highly dependent on imported Group III base oils as there is currently only one domestic producer of Group III oils, Hindustan Petroleum, which produces about 24,000 t/y Group III base stocks.
The increasing need for lower viscosity base stocks and synthetic base oils is driving some suppliers to up their game in terms of product slate. Malaysia's state-owned Petronas Lubricants International, for example, is transitioning its base oils output to produce mostly Group III+ base oils instead of Group III base oils, the company said earlier this year.
About half of this year's output from the Melaka, Malaysia, refinery will be Group III+ base oils, mainly two cuts-a 4 centiStoke and a 6 cSt oil. Both have viscosity indices of 132. The base oil unit has capacity to produce 50,000 metric tons per year of Group II and 268,000 t/y of Group III oils, according to Lubes'n'Greases Guide to Global Base Oil Refining.
The output of Group III+ base oils will rise steadily over the following years, although Petronas will continue to produce a small volume of Group III base oils. Petronas has secured some original equipment manufacturer approvals for its Group III+ supplies and plans to secure the remaining approvals within the next two years. It was also reported that the company was currently looking to build storage capacity in the United States and hopes to increase sales in that market.
Spot base oil activity was somewhat subdued, with values reported as stable to soft as there was no clear price direction amid fluctuating feedstock values and softening demand levels. Prices were notionally revised to reflect bid and offer levels.
Ex-tank Singapore Group I prices for the solvent neutral 150 grade were unchanged at $740-$760/t per metric ton, while the SN500 was at $790/t-$810/t. Bright stock was steady at $900/t-$920/t, all ex-tank Singapore.
Group II 150 neutral was heard at $780/t-$800/t, while the 500N was holding at $790/t-$820/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed lower by $10/t at $610/t-$630/t, and the SN500 grade was also adjusted down by $10/t to $600/t-$620/t. Bright stock moved down by $10 to $770/t-$790/t, FOB Asia.
Group II 150N was down by $20/t at $590/t-$610/t FOB Asia, while the 500N and 600N cuts were also revised down by $20/t to $610/t-$630/t, FOB Asia.
In the Group III segment, the 4 centiStoke grade was down by $10/t at $800-$830/t and the 6 cSt at $820/t-$865/t. The 8 cSt grade was assessed lower by $10/t at $710/t-$740/t, FOB Asia for fully-approved product.
In other news, many refiners are rushing to get ready for the implementation of the International Maritime Organizations 2020 0.5 percent sulphur cap for marine fuels, with many launching a new set of fuels and lubricants that will meet the required specifications.
ExxonMobil announced that the company had introduced EMF.5, a range of engineered marine fuels developed ahead of the IMO 2020 sulfur cap implementation. All the fuels in the range are specifically engineered to help vessel operators comply with the 2020 regulations, ExxonMobil stated in a press release on July 3.
ExxonMobil also reported that it had developed a newly formulated 40BN cylinder oil, Mobilgard 540, which is specifically designed to work with low-sulfur fuels. The new lubricant will be available across the companys global port network and via its extensive distribution network.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.