The base oil market appeared to be ending the year against a more balanced supply and demand scenario than in previous years, likely due to unexpected plant outages and tighter conditions on a global scale in recent months.
A few suppliers underscored that supply of the lighter grades was tight, and demand had not let up, particularly as some buyers were already trying to secure cargoes for arrival before the Lunar New Year holidays in February.
Another incentive for consumers to seek cargoes was the possibility that prices would continue to edge up. Higher crude oil and feedstock prices, together with the snug market conditions, were placing pressure on price ideas in Asia.
Naturally, there were certain segments that were slightly better supplied than others, given recent and upcoming capacity additions.
For example, sources said that there were quite a few API Group III base oils cargoes in the system - with availability of material that does not have original equipment manufacturers approvals particularly plentiful - because of additional production in the Middle East, together with the return to production of the Shell-Qatar Pearl gas-to-liquids (GTL) plant in Ras Laffan, Qatar, in mid-year.
The GTL refinery had started to experience production issues late last year; the base oil plant was eventually shut down last February, and had only returned to production in July.
It was also heard that Abu Dhabi National Oil Company (Adnoc) had been regularly shipping Group III material out of its plant in Ruwais, United Arab Emirates, to China during the year, with approximately 10,000 metric tons expected to arrive this month, according to sources. The Adnoc plant can produce 100,000 metric tons per year of Group II and 500,000 t/y of Group III oils, according to Lubes'n'Greases Guide to Global Base Oil Refining.
There were also reports that supply of Group II oils was loosening somewhat, as U.S. producers had resumed production following hurricane-related outages in September. At least two suppliers were heard to be offering December-loading spot cargoes to India.
On the other hand, there was talk that Luberef's product would not be coming to market at the end of the year, or early next year as originally anticipated, and that commercial sales would be slightly delayed, although further details could not be confirmed with the producer directly.
Luberef's plant in Yanbu' al Bahr, Saudi Arabia, has been expanded to produce Group II and additional volumes of bright stock, resulting in a capacity to produce 175,000 t/y of Group I and 708,000 t/y of Group II base oils.
Meanwhile, additional information emerged about the new supply agreement between Neste and Bahrain Petroleum Company (Bapco) - which allows Bapco to launch its own brand of base oils from the joint-venture plant the two companies own in Sitra, Bahrain. Talk circulated that a large trading company and a major lubricant supplier would be awarded the portion of production that Bapco is entitled to from the JV plant as of next year. The Neste/Bapco plant can produce 400,000 t/y of Group III oils.
In terms of pricing, discussions for a number of base oil cuts were taking place at higher levels from last week, given tight conditions and supporting fundamentals.
Group I solvent neutral 150 was assessed up by $10/t to $700-$720/t ex-tank Singapore, while the SN500 grade was holding at $810/t-$830/t.
Bright stock was also steady at $910/t-$930/t ex-tank, although buying interest for this grade was subdued.
Group II 150 neutral was hovering at $710/t-$730/t, and 500N was also steady at $880/t-$900/t ex-tank Singapore, following a small upward revision last week.
On an FOB Asia basis, Group I SN150 edged up $10/t to $610/t-$630/t, and the SN500 grade also moved up by $10/t to $730/t-$750/t, FOB Asia.
Bright stock was adjusted up by a heftier $40/t to bring it more in line with current market indications at $790/t-$820/t, FOB Asia.
Group II 150N was higher by $10/t again this week at $620/t-$640/t, but the 500N/600N grades were unchanged at $770/t-$810/t, all FOB Asia.
In the Group III segment, 4 centiStoke and 6 cSt grades were steady at $780/t-$800/t, while the 8 cSt was also holding at $760/t-$780/t, FOB Asia.
Base oil market participants kept a watchful eye on crude oil prices, as the upward trend seen in recent trading sessions persisted.
Oil futures climbed on Monday, following an explosion in one of New York Citys busiest transit hubs, coupled with expectations that the arrival of frigid weather in various regions would increase the demand for fuel.
Furthermore, Brent crude in London reached its highest level since 2015 as a key North Sea pipeline was shuttered. The Forties Pipeline System, one of the most important oil transportation channels in the world, was expected to be fully halted after a crack was found, the pipeline operator Ineos said.
On Monday, Dec. 11, Brent crude for January delivery on the London-based ICE Futures Europe exchange was trading at $64.39 per barrel, from $63.22/bbl on Dec. 4.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreases shall not be liable for commercial decisions based on the contents of this report.