Asia Base Oil Price Report

Mounting base stock supply levels and slowing demand appeared to be signaling the start of the summer season, when activity in several downstream segments tends to subside.

Price volatility on the feedstock side, together with unresolved trade issues between the United States and China, and growing tensions in the Middle East, added an element of uncertainty to the market, resulting in buyers taking a cautious attitude towards base oil purchases.

Crude oil prices were slightly erratic during the week, climbing one day and tumbling the next. Futures soared on Thursday following reports that Iran had shot down a drone on its southern coast near the Strait of Hormuz, a crucial point in oil shipping lanes. The United States later confirmed that one of its drones had been shot down at that location. This incident comes after the U.S. blamed Iran for the attacks on two oil tankers in the Gulf of Oman near the Strait of Hormuz last week.

Crude had settled lower on Wednesday over indications of softening oil demand growth as the U.S.-China trade conflict might lead to a further slowdown in the global economy.

On Thursday, June 20, Brent August futures were trading at $64.38 per barrel on the London-based ICE Futures Europe exchange, up from $61.07/bbl on June 13.

Demand for imports in China was heard to have declined due to the increased availability of domestic base stocks, as existing plants are running well and a number of new plants have started production. Uncertainties regarding prospects in the downstream lubricant markets due to the ongoing trade tensions also affected base oil consumption.

Additionally, there were a few cargoes that loaded in the Middle East this month which were expected to arrive in China over the next few weeks. Two API Group III cargoes totaling approximately 14,000 metric tons were heard to have been shipped from the United Arab Emirates, while a Group II cargo was heard to have loaded in Taiwan for June delivery.

The Taiwanese Group II producer, Formosa Petrochemical Corp., was also understood to have issued a sales tender for a July shipment of 3,000 tons to 6,000 tons of Group II base oils.

Traditional suppliers to China such as the South Korean producers of Group II/III base oils were heard to be in possession of extra barrels because of the reduction in Chinese demand, and were hoping to place product in other regions.

European Group II markets appeared to be well supplied given the recent start-up of a large Group II facility in the Netherlands, and there appeared to be little room for imports from Asian suppliers.

At the same time, Group II availability from several U.S. producers was heard to have tightened due to healthy domestic demand, with fewer cargoes heard to be on offer for export. "All the big U.S. Gulf Group II producers are quite comfortable and in no urgency to export product as had been common a few months ago," a source noted.

South Korean suppliers were therefore heard to be looking at the possibility of exporting Group II cargoes to the U.S. and Latin America, but it was not clear whether any fresh transactions had been completed. There was also speculation that some South Korean cargoes may find their way to the Middle East.

Meanwhile, the volumes of South Korean Group III base oils moving into the U.S. were expected to have increased in the last couple of months as Chinese requirements have contracted and suppliers were on the lookout for a new home for their products.

Spot prices in Asia were flat during the week, but plentiful supply and lackluster demand have started to exert downward pressure on indications.

Ex-tank Singapore Group I prices for the solvent neutral 150 grade were maintained at $740-$760/t per metric ton, while the SN500 was steady at $790/t-$810/t. Bright stock was also unchanged at $900/t-$920/t, all ex-tank Singapore.

Group II 150 neutral was heard at $780/t-$800/t, while the 500N was assessed at $790/t-$820/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was holding at $630/t-$650/t, and the SN500 grade at $620/t-$640/t. Bright stock was heard at $790/t-$810/t, FOB Asia.

Group II 150N was mentioned at $620/t-$640/t FOB Asia, while the 500N and 600N cuts were at $640/t-$660/t, FOB Asia.

In the Group III segment, the 4 centiStoke grade was stable at $820-$860/t and the 6 cSt was at $830/t-$875/t. The 8 cSt grade was holding at $730/t-$760/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.