Asia Base Oil Price Report

Activity in the Asian base oil market was lackluster, but this was no surprise as trading typically slows down during December since buyers prefer to end the year with minimum inventories due to tax implications.

Demand was also impacted by the continued volatility of crude oil and feedstock prices, as buyers hoped that lower values upstream, together with a lengthening supply scenario, would lead to lower base oil prices down the road.

Participants mentioned that heavy viscosities in particular appeared to be under pressure, as consumption tends to weaken during the winter months.

Additionally, in the case of API Group II heavy neutral, the return to full production of a number of plants has resulted in ample regional supply of this cut.

Formosa Petrochemical's Group II plant in Taiwan and Hyundai Oilbank/Shell's Group II plant in South Korea resumed production in the third quarter, following routine turnarounds, allowing for more product to enter the supply system and releasing more barrels into the spot market.

Additionally, since the price of gas oil has fallen from its lofty early October levels, several producers in Northeast Asia are gradually returning to full production rates after cutbacks in previous weeks. These measures had been undertaken when gas oil output was more profitable than base oils, and refineries had, therefore, trimmed the streaming of feedstocks into their base oil units.

Group I was also plentiful as plants in Thailand continued to run at full rates, and a Japanese producer was heard to be increasing its run rates in December.

In production news, there were rumblings that South Korean producer SK Lubricants would be building a base oil plant in the United States. The producer is ostensibly undertaking a feasibility study, and construction of the plant may not start for five to six years from now, if it gets approval, sources said.

Two projects that would bring additional capacity to China are due to be completed by the end of this year or early in 2019: Hainan Handi Sunshine Petrochemicals Group II and III expansion on the island of Hainan; and Hengli Petrochemicals construction of a Group II/III plant in Dalian. The companies have previously pegged the sizes of those projects at 1.2 million metric tons per year and 630,000 t/y, respectively.

Market players were concerned that the added capacity coming on stream would weigh on base stock pricing not only in China, but the rest of the region.

This week, spot prices in Asia continued to be exposed to downward pressure, but there were no major adjustments as prices had been revised down in the previous two weeks on lower bids and offers.

Ex-tank Singapore prices for Group I solvent neutral 150 were steady at $760 per metric ton to $780/t, and the SN500 cut was assessed at $790/t-$810/t. Bright stock was unchanged at $880/t-$900/t, all ex-tank Singapore.

Group II 150 neutral was hovering at $780/t-$810/t and 500N was near $800/t-$820/t, all ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was assessed at $690/t-$710/t, while SN500 was gauged at $700/t-$720/t. Bright stock was steady at $810/t-$830/t, FOB Asia.

Group II 150N was heard at $680/t-$700/t FOB Asia, while 500N and 600N were at $710/t-$730/t, FOB Asia.

In the Group III segment, the 4 centiStoke grade was holding at $860-$880/t, and the 6 cSt was steady at $870/t-$890/t. The 8 cSt was unchanged from the previous week at $720/t-$750/t, FOB Asia.

Upstream, crude oil prices crashedearly Thursday as OPEC was not able to present a solid agreement in Vienna, at least for the time being, OilPrice.com reported.

After hours of meetings, OPEC cancelled its news conference,waitingfor the Russian delegation to arrive on Friday. Russia and Saudi Arabia were expected to agree to output cuts, while the rest of OPEC-save for the United Arab Emirates and Kuwait-appeared either unable or unwilling to go along with production cuts.

On Thursday, Nov. 29, Brent February futures once again fell below $60 per barrel during midday trading and were hovering at $59.44/bbl on the London-based ICE Futures Europe exchange on Thursday afternoon, down from $59.42/bbl for January futures on Nov. 29.

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

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