Steeper crude oil and raw material prices were driving up bids and offers this week, with some spot numbers and domestic list prices undergoing upward revisions.
Aside from the higher cost of feedstocks, a tight supply/demand scenario for some of the base stock grades provided additional support to the price indications.
A number of turnarounds were expected to result in reduced supply of base oils in Asia, with plants in Taiwan and China anticipated to be shut down for maintenance in the second half of the year.
At the same time, one turnaround scheduled for later this year has been delayed, and a new plant is expected to come on stream at the end of 2018.
Fresh information about a turnaround at the 483,000 t/y Group III SK-Pertamina plant in Dumai, Indonesia, surfaced this week. The producer was reported to have delayed a turnaround originally scheduled for this month to next year.
Experts speaking at the ICIS Asian Base Oils and Lubricants conference in Singapore last week also mentioned that Hengli Petrochemical was getting ready to bring its 683,000 t/y Group II/III t/y plant in Dalian on stream at the end of the year, or early next year.
As mentioned previously, Taiwanese producer Formosa Petrochemical has scheduled a two-month turnaround at its 600,000 metric tons per day plant in Mailiao, starting this month. The producer has suspended spot shipments, but will continue to cover most contract commitments during the outage.
In China, Shandong Hengrundes Group II plant in Shandong was heard to have been taken off-line for maintenance the first week of June and was expected to be restarted in early July, although this could not be confirmed.
There were also reports that the base oil units of Chinese producers Sinopec Jingmen, which produces Group I and II oils, and CNOOC Huizou, which manufactures Group II and III oils, would be shut down in September.
As a result of these market conditions, and the ongoing pressure from upstream costs, domestic base oil list prices were heard to have been adjusted up by Formosa Petrochemical in Taiwan.
Formosa was heard to have raised its domestic list prices for July shipments of base oils as of the start of the month. Prices for its Group II 70 neutral were increased by New Taiwan dollar (NT$) 0.32 per liter compared to June numbers. The producers 150N also went up by NT$ 0.32/l, while its 500N cut rose by NT$0.18/l.
While Group II spot price discussions were taking place at higher levels this week, Group I and III seemed to be holding fairly steady.
Group III base oils remained weighed down by plentiful availability and the continuous competition between suppliers of fully-approved material versus product with partial or no approvals.
Sources said that Middle East producers have the advantage of close proximity to sources of raw material, together with access to waxy crude oil that is especially suited for Group III production, and that these suppliers were therefore able to offer attractive prices compared to Asian and European producers.
At the same time, observers also mentioned that Group III has been used in some applications where they are technically not required, but blenders have done so due to Group III prices hovering close to, or even below, some Group I cuts.
In general terms, Asian spot prices were notionally assessed stable-to-firm, with some indications driven up by firm crude oil and raw material costs, and snug availability.
Spot prices on an ex-tank Singapore basis were unchanged, with Group I SN150 holding at $780/t-$800/t, and the SN500 at $890/t-$910/t. Bright stock was noted at $960/t-$980/t, all ex-tank Singapore.
Group II 150 neutral was unchanged at $820/t-$850/t, and the 500N cut at $910/t-$930/t ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was notionally adjusted up by $10/t at $710/t-$730/t, while the SN500 was holding at $840/t-$860/t. Bright stock was assessed at $870/t-$890/t FOB Asia.
Group II 150N also moved up by $10/t to $760/t-$780/t to reflect discussions, while the 500N/600N was heard at $830/t-$860/t, all FOB Asia.
In the Group III segment, the 4 centiStoke and 6 cSt grades were unchanged at $880-$900/t and $860/t-$880/t, respectively. The 8 cSt was assessed at $770/t-$790/t, FOB Asia.
Further upstream, crude oil futures had climbed earlier in the week, but fell on Thursday on reports of a small build in U.S. oil inventories and news that China could impose retaliatory duties on U.S. crude oil imports if Washington goes ahead with the latest round of planned tariffs.
At the same time, Iran threatened to stop oil exports from the Strait of Hormuz, the worlds most important oil chokepoint, if the U.S. succeeds in halting Iranian crude sales, Bloomberg reported. The Strait of Hormuz is the worlds biggest concentration point for tankers that carry about 30 percent of all seaborne-traded crude and other liquids during the year. U.S. President Donald Trump decided in May to pull out of the 2015 nuclear agreement with Iran, with sanctions set to be renewed in November.
Another interesting development this week was the announcement by Saudi Aramco that it would be adjusting its Asia crude oil pricing marker for the first time in 30 years in an effort to increase the overall reliability of its crude oil pricing.
Aramcos new Asia marker will replace Platts Oman with Dubai Mercantile Exchange Oman effective Oct. 1, 2018, creating a hybrid between two major Asia benchmarks. The companys long-standing price marker had been the average of Platts Dubai and Platts Oman assessments, online newspaper Asharq Al-Awsat reported on Thursday.
The DME launched the Oman contract in 2007 and it is the most liquid physically deliverable futures contract for Middle East crude oil. In comparison, there are rarely bids or offers for Oman cargoes during the Platts market-on-close price assessment.
On Thursday, July 5, Brent September futures were trading at $77.90 per barrel on the London-based ICE Futures Europe exchange, slightly up from $77.54 per barrel for August futures on June 28.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.