Higher crude oil prices continued to squeeze base oil producers margins, but lackluster buying interest and ample supply thwarted upward price movements, with numbers actually falling this week at some locations.
Market participants also followed developments related to Typhoon Jebi and an earthquake in Japan, Tropical Storm Gordon in the United States, and the recent monsoons and flooding in India as severe weather can have significant impact on base oil production, demand and logistics.
Typhoon Jebi, the strongest tropical cyclone to hit Japan in 25 years, led to the closure of several transportation and cargo hubs such as the Kansai International Airport in Osaka after a tanker smashed into a bridge that connects the airport with the mainland.
The typhoon also disrupted the arrival of crude oil and oil product tankers at several ports.
There were reports that Japans Cosmo Oil had halted oil product shipments at its refineries in Sakai, Yokkaichi, and Chiba on Tuesday, but shipments had resumed on Wednesday. The Yokkaichi refinery houses a 119,000 metric tons per year API Group I base oil plant.
Separately, it was heard that JXTG Holdings plans to shut its Negishi refinery early September to mid-October for scheduled maintenance. It could not be ascertained whether this shutdown would affect production at the companys 4,400 t/y Group I base oil plant at the same location.
In the U.S., despite concerns about the possibility of production disruptions due to Tropical Storm Gordon making landfall on Tuesday in Mississippi and Louisiana - where several large base oil facilities are located - no significant issues were reported, although most plants operators were heard to have taken precautionary measures ahead of the storm.
In India, monsoon rains continued to disrupt life in various parts of India, causing transportation and logistical issues, with base oil and lubricant demand seeing a decrease as a result.
Upstream, the shutdown of oil rigs in the Gulf of Mexico and along the U.S. Gulf Coast ahead of Tropical Storm Gordon had pushed crude futures up, but prices dipped slightly on Wednesday as analysts acknowledged that the weather system had had a minor impact to the oil and gas infrastructure.
Concerns that oil demand would decline due to economic uncertainties in emerging markets and an escalation in the U.S. trade dispute with China also weighed on prices.
On Thursday afternoon, Brent October futures were trading at $76.08 per barrel on the London-based ICE Futures Europe exchange, compared to $77.39/bbl on Aug. 30.
In terms of base oil supplies, regional availability of Group II base oils has decreased on the back of Formosa Petrochemicals plant turnaround in Mailiao, Taiwan. The shutdown at the 600,000 t/y plant was originally slated to be completed in September, but the company was understood to have extended the turnaround to October.
This has caused a decrease in both spot and contract base oil shipments in the region, with domestic numbers in China edging up and buyers looking for alternative sources of product.
Counter to the domestic price trend in China, local prices in Taiwan were heard to have moved down for September transactions.
Formosa was reported to have dropped its September domestic list prices in Taiwan. The producers Group II 70 neutral cut was heard to have been reduced by New Taiwan Dollar (NT$) 0.70 per liter, while its 150N fell by NT$1.57/l. Formosa also adjusted down its 500N by NT$1.51/liter.
Asian Group III supply was also expected to suffer a dent when SK Lubricants takes its plant in Ulsan, South Korea, off-line for a turnaround this month. The plant can produce 701,000 t/y of Group II and almost 1.3 million t/y of Group III base oils. However, the supply gaps might be filled by material moving into Asia from the Middle East, sources noted.
Base oil spot prices were moving within the price levels seen in the previous week, with negotiations for September cargoes heard to be ongoing.
Ex-tank Singapore numbers were largely stable, with Group I solvent neutral 150 assessed at $760/t-$780/t, and the SN500/600 cuts at $860/t-$880/t. Bright stock hovered at $925/t-$945/t, all ex-tank Singapore.
Group II ex-tank Singapore assessments were also steady, with the 150 neutral gauged at $805/t-$835/t, and the 500N at $890/t-$910/t ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was heard at $700/t-$720/t, while SN500 was holding at $820/t-$840/t. Bright stock was steady at $850/t-$870/t FOB Asia.
Group II 150N was assessed at $750/t-$770/t, while the 500N/600N cuts were at $820/t-$840/t, all FOB Asia.
In the Group III segment, 4 and 6 centiStoke grades were hovering at $870-$890/t and $850/t-$870/t, respectively, while 8 cSt was steady at $760/t-$780/t, FOB Asia.
In other market-related news, Chinas National Development and Reform Commission increased the retail price of fuels, effective Sep. 4, according to Xinhua News. The adjustment reflected stronger crude oil values in international markets. Under the current pricing mechanism, if international crude oil prices change by more than 50 yuan per ton and remain at that level for 10 working days, the prices of refined oil products such as gasoline and diesel in China will be adjusted accordingly.
The retail price of gasoline increased by CNY 180 per metric ton, while the price of diesel inched up by 170/t (approximately U.S. $26/t and $25/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.