The Asian base oils sector has failed to regain its tempo, following recent holidays, and buyers did not appear in a hurry to enter the market as there was plentiful availability of most grades and inventories were deemed more than adequate to meet the current call for product.
Aside from ample supply, economic and geopolitical uncertainties were also placing a damper on buying impetus, as players in downstream lubricant markets were concerned about a potential decline in product demand.
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There had been high hopes that the trade conflict between the United States and China would be resolved before the May 10 deadline, after several months of truce. However, following several rounds of negotiations, no agreement was reached, which resulted in yet another round of tariff increases on a significant number of goods.
The U.S. increased tariffs from 10 percent to 25 percent on $200 billion worth of Chinese products last Friday, and Beijing retaliated on Monday with tariff hikes on $60 billion of U.S. exports, including chemicals, coal, vehicles, and medical equipment.
The tense trade relationship had already had negative effects in China, where demand for base oils has decreased since last year as prospects for exports of lubricants and other finished products became more tenuous.
China imported U.S. base stocks on a regular basis before the trade conflict began, but import volumes have plummeted since early last year. Despite a reduction in imported base oils, market sources expected to see a supply overhang in China during the next couple of months given a decline in requirement levels.
At the same time, Chinas reliability on imports to meet local base oil demand has contracted as domestic production has increased over the last couple of years, and quantities imported from other Asian countries may therefore gradually decline.
Additionally, the possibility of a conflict in the Middle East was impacting crude oil prices on a global scale, with numbers climbing after a downward spell.
Oil futures rose on Thursday for a third day in a row as fears of supply disruptions due to heightened tensions in the Middle East overshadowed reports of an increase in U.S. crude inventories. However, mixed opinions on whether OPEC members would trim supply to prop oil prices in coming months helped cap the gains.
An attack on four oil tankers in the Gulf on Sunday – for which no one has claimed responsibility – and Saudi Arabias announcement that drones carrying explosives had hit two of its oil pumping stations along a pipeline have compounded concerns about a possible conflict in the Middle East, CNBC.com reported.
Asian shippers and refiners have put ships heading to the Middle East on alert and are expecting a possible rise in marine insurance premiums after the attacks.
On Thursday, May 16, Brent July futures were trading at $72.86 per barrel on the London-based ICE Futures Europe exchange, up from $69.60/bbl on May 9.
Not all countries in the region were equally affected by geopolitical tensions. Activity in India was described as steady and the country continued to be one of the driving forces for base oils as demand for lubricants showed continuous growth. Cargoes ex-United States, South Korea and Europe were reported concluded into India in recent weeks, while local producers were heard to be running base oil units at normal rates.
There were also reports that domestic base oil suppliers in India had lifted API Group I prices for May shipment on the back of recent hikes in crude oil and raw material prices, and that indications have been marked up by up to $20 per metric ton from April levels.
Exports of Group I and II base oils from the plant in Yanbu, Saudi Arabia, appeared to have resumed, following a turnaround that lasted slightly longer than expected, with substantial shipments heard to have been loaded at that location for delivery in India and possibly Pakistan.
Spot prices in Asia were largely unchanged from a week ago, as both buyers and sellers were evaluating conditions and monitored the movement of feedstock prices, which remained volatile.
Ex-tank Singapore Group I prices for the solvent neutral 150 grade were heard at $740-$760/t per metric ton, while the SN500 was holding at $790/t-$810/t. Bright stock was steady at $900/t-$920/t, all ex-tank Singapore.
Group II 150 neutral was assessed at $780/t-$800/t, while the 500N was unchanged at $790/t-$820/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was stable at $650/t-$680/t, and the SN500 grade was at $640/t-$660/t. Bright stock was gauged at $790/t-$810/t, FOB Asia.
Group II 150N was assessed at $630/t-$650/t FOB Asia, while the 500N and 600N cuts were heard at $640/t-$660/t, FOB Asia.
In the Group III segment, the 4 centiStoke grade was hovering at $830-$870/t and the 6 cSt was at $840/t-$885/t. The 8 cSt grade was steady at $730/t-$760/t, FOB Asia for fully-approved product.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.