Asia Base Oil Price Report

Lengthening supply and sluggish demand weighed down base oil pricing in Asia, but a retreat in crude oil values may bring some relief to producers squeezed margins.

Steep crude oil values over the last several weeks had resulted in leaner margins for a majority of base oil suppliers, but crude oil values have dipped, taking some of the pressure off.

Crude oil futures dropped sharply mid-week, with the West Texas Intermediate benchmark falling below the $70 per barrel mark for the first time in more than three weeks, on the back of data revealing a significant rise in domestic crude supplies for a fourth week in a row. Brent futures declined to their lowest settlement since September 21.

The secretary-general of the Organization of the Petroleum Exporting Countries, Mohammed Barkindo, described the oil market as well-supplied but fragile, Reuters reported. Barkindos remarks came after he was asked at a conference in New Delhi about the potential impact of the controversy surrounding the disappearance and alleged murder of Saudi journalist Jamal Khashoggi in Turkey.

On Thursday, Oct. 18, Brent December futures were trading at $79.49 per barrel on the London-based ICE Futures Europe exchange, compared to $81.12/bbl for November futures on Oct. 11.

Asian participants witnessed the increase of base oil posted prices in the United States during the first two weeks of October, driven by escalating crude oil and feedstock costs, but expressed frustration at being unable to push through upward adjustments in their own region as conditions were slightly less conducive to a hike.

Supply in Asia is quite plentiful, and the resumption of output at several facilities was likely to exacerbate the situation, sources said.

Large facilities such as Formosa Petrochemicals plant in Mailiao, Taiwan, and Hyundai Oilbank/Shells expanded base oil plant in Daesan, South Korea, have resumed production following turnarounds, and availability of Group II cuts was expected to grow over the next few weeks as producers rebuild inventories and offer fresh cargoes for spot business.

Indeed, Formosa was heard to have significantly increased the volumes of base stocks shipped to China this month, compared to September quantities, which were cut due to the producers low inventories.

Also in China, Sinopec subsidiary Jingmen Petrochemical restarted production at its 203,000 metric tons per year Group I and 100,000 t/y Group II plant in Jingmen at the end of September, following a month-long turnaround.

Additionally, there continued to be very attractive offers for product originating in the Middle East, with several parcels expected to arrive in India over the next few weeks.

Product from Iran has been moving to India and several Middle East destinations on a regular basis, despite looming sanctions, which are likely to be imposed by the U.S. in November. While the sanctions were expected to thwart crude oil exports and limit financial transactions, participants did not anticipate that base oil trade would be significantly affected.

On the other hand, increased numbers of Northeast Asian base oil cargoes of Group II base oils were also heard to be moving into the Middle East Gulf as supply in Asia was starting to lengthen.

Export base oil spot assessments were stable week on week, while business was described as lackluster, with buyers securing only volumes to be consumed on a day-to-day basis while trying to keep lean inventories.

Ex-tank Singapore numbers for Group I solvent neutral 150 were unchanged at $760 per metric ton to $780/t, and the SN500/SN600 cuts were at $860/t-$880/t. Bright stock was steady at $925/t-$945/t, all ex-tank Singapore.

Group II 150 neutral was heard 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 assessed at $700/t-$720/t, while SN500 was holding at $820/t-$840/t. Bright stock was gauged at $850/t-$870/t FOB Asia.

Group II 150N was holding at $750/t-$770/t FOB Asia, while 500N and 600N were also unchanged at $810/t-$830/t 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 assessed at $760/t-$780/t, FOB Asia.

In other regional news, Iran increased the volumes of crude oil shipped to China this month.

Tankers carrying about 22 million barrels of Iranian crude are on their way to the Chinese port of Dalian, Reuters reported, citing ship-tracking data, and noting this is a record-high amount of crude from Iran to be received by Chinese clients amid falling imports to other large clients, such as Japan and South Korea. China appears keen to continue with these transactions, despite attempts by Washington officials to dissuade Chinese refiners from securing such large volumes from Iran.

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

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