Asia Base Oil Price Report

Producers were slightly relieved that crude oil and feedstock prices have pulled back, as margins had been squeezed by the recent price spikes, while base oil increase initiatives were met with resistance because of soft market conditions.

Brent futures had briefly jumped above $70 per barrel on Sept. 16 following strikes on Saudi crude oil facilities, before steadily falling back to below $60/bbl.

Crude oil futures weakened early in the week on gloomy predictions about global oil demand and reports by the United States Energy Information Administration (EIA) of a build-up in crude oil inventories for the week of Oct. 4. Prices inched up on Thursday after Turkey launched an offensive in Syria, and on talk about possible progress in ending the U.S.-China trade dispute.

On Oct. 10, Brent December futures were trading at $58.37 per barrel on the London-based ICE Futures Europe exchange, compared to $57.71/bbl on Oct. 3.

Activity in the base stocks sector was still fairly moderate given the Golden Week and National Day holidays celebrated this week in China, Taiwan and South Korea, but suppliers were hoping that once participants returned to their workplaces, buying appetite would improve.

Consumers perceived the market to be well-supplied and did not seem to be in a rush to secure additional product as upstream values remained volatile. They said prices could go down just as fast as they had gone up three weeks ago, and whether the base oil increases announced at that time would stick remained a question.

Back in late September, ExxonMobil was reported to have communicated a price increase of U.S. $40 per metric ton for contract transactions to China and several other Asian destinations as well, effective Oct. 4. The refiner was heard to be running its Singapore base oil plant at reduced rates and its inventories had tightened, sources said. However, there were rumblings that the increase might not go through in its entirety due to the changed market fundamentals.

The Japanese market was also weighed down by lackluster product uptake against abundant availability. There is no sign of a recovery in demand and the supply glut does not seem to be resolved easily, a source commented.

These are some of the reasons why buyers were resisting a price increase for the fourth quarter proposed by a major Japanese refiner. Base oil prices are generally calculated based on a cocktail of prices in Japan, including that of crude imports, and for the fourth quarter, the price was expected to go up by 0.2 Japanese yen (less than one U.S. cent) per liter. However, the main refiner, JXTG Nippon Oil and Energy Corp., which typically leads price adjustments, was heard to be aiming at implementing an increase of 5 yen per liter, given rising raw material costs emerging from the need to produce low-sulfur bunker fuel to comply with the new International Maritime Organization regulations from Jan. 1, 2020.

Base oil price negotiations between Japanese buyers and the refiner were ongoing this week, with no agreement reported by close of business on Thursday.

In Taiwan, Formosa Petrochemical was also heard to be raising domestic list prices for October shipments of its API Group II base oils. The producers 70 neutral was expected to be lifted by New Taiwan dollars (NT$) 0.08 per liter; its 500N grade would go up by NT$0.27/liter and the price for its 150N cut would remain unchanged.

In China, buyers and sellers were slowly returning to business following the week-long holidays, but supply was anticipated to remain fairly long because of weak demand, partly due to the ongoing U.S.-China trade dispute, and also because base stock purchases tend to decline during the last quarter of the year as buyers and sellers begin to clear inventories.

Spot prices were mixed this week, with a majority of FOB Asia assessments remaining unchanged until further corroboration can be obtained. Ex-Singapore assessments were revised up to reflect the recent increase initiative of a major refiner, although the adjustments do not reflect the full hike. Group III values were adjusted down to reflect current discussions as plentiful supply was placing downward pressure on price indications.

Ex-tank Singapore Group I prices for the solvent neutral 150 grade were assessed up by $10/t at $730/t-$750/t, and the SN500 was also up by $10/t at $780/t-$800/t. Bright stock was adjusted up by $10/t as well to $850/t-$870/t, all ex-tank Singapore.

The Group II 150 neutral was revised up by $10t to $760/t-$780/t, while the 500N was also up by $10/t at $770/t-$790/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was unchanged at $600/t-$620/t, and the SN500 grade was steady at $560/t-$580/t. Bright stock was assessed at $740/t-$760/t, FOB Asia.

Group II 150N was hovering at $570/t-$590/t FOB Asia, while the 500N and 600N cuts were gauged at $580/t-$600/t, FOB Asia.

In the Group III segment, the 4 centiStoke and 6 cSt were assessed down by $10/t at $780-$810/t and $790/t-$835/t, respectively. The 8 cSt grade was also down by $10/t at $700/t-$730/t, FOB Asia for fully approved product.

In market related news, Asian refiners are seeing the effects of the ongoing battle between the U.S. and Iran, with the price of delivered crude oil reflecting a significant increase due to the sharp rise in tanker freight costs, Reuters reported.

Freight rates for shipping crude have surged since the administration of U.S. President Donald Trump imposed sanctions on Chinese tanker companies for carrying Iranian crude in violation of sanctions against Tehran.

Since many Asian refiners rely heavily on long-distance supplies from the Middle East, Africa and the U.S., the rise in freight costs will hit them disproportionately, the Reuters article noted.

Freight rates may also be impacted as ship owners prepare for the higher cost of running ships on low-sulfur fuel oil as required by the IMO 2020 regulations.

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

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