Asia Base Oil Price Report

The base oil market in Asia mirrored other parts of the world since activity has slowed down as expected during the summer months, with most transactions limited to contractual shipments, and buying interest for spot cargoes described as lackluster.

This situation is partly the result of uncertainties riddling the market - most participants preferred to wait to secure cargoes whenever possible as there was no clear direction for crude oil prices, and future base stock demand levels from the lubricants segment remained a question mark.

Appetite for Asian spot base oil parcels for export has also softened slightly because most regions were well-supplied, and demand has weakened, too, although a majority of buyers continued to take volumes under contract as usual.

The one factor that could lead to a potential spike in demand levels was severe weather conditions. Devastating hurricanes on the U.S. Gulf Coast last year had led to an unexpected draw on Asian availability due to production disruptions at U.S. base oil facilities and a need to import material from other areas. A number of Asian cargoes had made their way to the United States during the second half of 2017, or to those destinations that were left without supply because export availability from the U.S. had dropped sharply.

Once U.S. production recovered during the first half of the year, a number of U.S. producers were heard to have exported base oils to China and India, but requirements have dwindled as these markets were becoming saturated with product, according to sources.

Additionally, quite a few Middle East base oil shipments were understood to have made their way to the West Coast of India, as demand there seemed to be healthier than at other Asian destinations.

There have been some questions about whether India would be able to continue importing Group I base oils from Iran, given the upcoming imposition of U.S. sanctions. Even if India is able to continue importing product, there could be logistical issues that could block transactions. For example, vessels transporting Iranian product might not be able to get cargo insurance.

This is already affecting crude oil exports from Iran. Hindustan Petroleum has cancelled an Iranian crude oil shipment after its insurer refused to provide coverage for the cargo on concern about U.S. sanctions, Reuters reported on July 26. India is looking for a way to secure a sanction waiver so it can continue buying crude from Iran as the countrys petrochemical industry depends heavily on oil imports.

One of the factors that continued to puzzle market players was crude oil pricing. Oil futures have see-sawed over the last couple of weeks, and it was almost impossible to predict when values would stabilize.

Crude futures edged up on Thursday, extending gains from the previous three sessions, because Saudi Arabia suspended shipments through the Bab el-Mandeb strait - which joins the Red Sea to the Gulf of Aden - after accusing Houthi rebels of an attack on its tankers. Futures were also buoyed by data showing that U.S. inventories have dropped to a three-and-a-half year low.

On Thursday, July 26, Brent September futures were trading at $74.49 per barrel on the London-based ICE Futures Europe exchange, from $72.62 per barrel on July 19.

A number of turnarounds were currently taking place at base oil facilities in Asia - including Formosa Petrochemical's in Taiwan and China National Offshore Oil Corp.'s in Huizou - and a couple of additional shutdowns were expected to start shortly.

Buyers, however, did not appear too concerned about product shortages, as many have built inventories earlier in the year, or have located alternate sources of material to cover requirements during these turnarounds.

Russian cargoes, which are usually acquired through tenders, were anticipated to be moving to China in August, and a number of parcels were also expected from the United Arab Emirates, aside from regular shipments from neighboring suppliers.

Trading was generally subdued given current conditions, with discussions for August spot shipments ongoing, but few deals reported. Due to a lack of confirmation, prices were assessed unchanged week on week.

Spot prices on an ex-tank Singapore basis were steady, with Group I SN150 heard at $780/t-$800/t, and the SN500 at $890/t-$910/t. Bright stock was holding at $960/t-$980/t, all ex-tank Singapore.

Group II 150 neutral was heard 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 assessed at $710/t-$730/t, while the SN500 at $840/t-$860/t. Bright stock was holding at $870/t-$890/t FOB Asia.

Group II 150N was unchanged at $760/t-$780/t, while the 500N/600N was also steady at $830/t-$860/t, all FOB Asia.

In the Group III segment, the 4 centiStoke and 6 cSt grades were heard at $880-$900/t and $860/t-$880/t, respectively. The 8 cSt was holding at $770/t-$790/t, FOB Asia.

In related market news, Chinas National Development and Reform Commission announced a decrease in fuel prices, which went into effect on July 24, according to Xinhua News. The downward adjustment reflected weaker crude oil values in international markets. The retail price of gasoline dropped by Chinese Yuan (CNY) 125 per metric ton, while the price of diesel decreased by CNY120/t (approximately U.S. $18/t and $17/t, respectively). Fluctuations in fuel prices influence driving patterns in China and can therefore have an impact on lubricant consumption.

Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.

LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.