The crude oil rally came after the U.S. Energy Information Administration reported U.S. crude stocks fell sharply to 411.6 million barrels, the lowest since February 2015.

The international crude oil production curbs implemented by OPEC members and a number of non-member nations will remain in place throughout 2018, and Saudi Arabia, the group’s de facto leader, said earlier this week that cooperation between OPEC and its partners will continue beyond 2018.

Brent crude futures were trading on the London-based ICE Futures Europe exchange at $70.87 per barrel on Thursday, Jan. 25, compared to $69.33 per barrel on Jan. 18.

Aside from the higher raw material costs, base oil prices received support from the supply/demand side, as suppliers in Asia have entered the year with relatively low inventories and availability was still considered tight.

While producers typically make an effort to lower stocks ahead of year-end by offering competitive pricing, or trimming operating rates, there was less of a need to implement these strategies as supply was balanced to tight in December.

This was the result of production problems in the second half of the year, not only in Asia, but also in the United States, which regularly exports base oils to the region.

Despite the fact that production has mostly returned to normal, and significant base oil volumes were expected to be shipped to Asia from the U.S. and the Middle East, availability was expected to remain snug in the first half of the year on the back of scheduled API Group II and III plant turnarounds. These include S-Oils unit in Onsan, South Korea; SK Lubricants plant in Ulsan, South Korea; and Formosa Petrochemicals facilities in Mai-Liao, Taiwan.

While the outages were not expected to affect Group I facilities directly, this segment was also anticipated to become strained as end-users sometimes use Group I base oils as a substitute for Group II grades in certain applications when availability of the latter is limited.

The Group I segment could see further tightening as Middle East producer Luberef was expected to bring new Group II material to the market from its Group I/II plant in Yanbual Bahr, Saudi Arabia, in early 2018, and possibly cease production of some Group I base oil cuts there. Iranian producers, who regularly export base stock to India, would receive a more predominant role as Group I suppliers in the region.

However, in recent weeks, it appears that availability of Iranian export cargoes has been tight, and shipments of Group I parcels from the U.S. to India have been booked instead.

The start of the spring production cycle was also anticipated to bring about an uptick in base oil buying interest in Asia. Many consumers in the region were likely to return to the market to secure product following the Lunar New Year holidays in mid-February, leading to a further tightening of availability.

Spot base oil prices in Asia were stable to firm this week, boosted by bullish upstream fundamentals and healthy supply conditions.

On an ex-tank Singapore basis, Group I SN150 and SN500 were revised up by $10/t at $720/t-$740/t, and $830/t-$850/t, respectively. Bright stock was steady at $910/t-$930/t, all ex-tank Singapore.

Group II 150 neutral edged up by $10/t to $730/t-$750/t, and 500N was unchanged at $890/t-$910/t ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was up by $10/t at $640/t-$660/t, and the SN500 grade also moved up by $10/t to $750/t-$770/t, FOB Asia. Bright stock was unchanged at $810/t-$840/t.

Group II 150N was assessed up by $10/t at $650/t-$670/t, and the 500N/600N grades were up by $5/t at $785/t-$825/t, all FOB Asia.

In the Group III segment, 4 centiStoke and 6 cSt grades were steady at $790/t-$810/t, and the 8 cSt at $770/t-$790/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.