Base oil producers persisted in their efforts to improve spot price levels given the recent rise in crude oil and feedstock values, but plentiful availability hampered the upward movement of prices.
While some segments of the market appeared better supplied than others, the recent inception of additional API Group II capacity in Europe with the start-up of ExxonMobils Rotterdam plant meant that less product would be moving from Asia into that region. This, in turn, led Asian producers to look for alternative outlets for their base oil barrels, both domestically and regionally, often in detriment of prices as suppliers sought to conquer market share.
This appeared to be evident in key markets such as China, where local prices have been adjusted down to safeguard accounts and compete with imports. At the same time, importers have been anxious about the climb in crude oil values because they will likely be faced with increased offer levels once they step back into trading circles to replenish inventories.
Furthermore, imports were expected to compete with additional product coming on stream locally, with at least a couple of new and expanded base oil plants anticipated to come on line soon.
The Hengli Petrochemical base oil plant in Dalian, which will have capacity to produce 683,000 metric tons per year of Group II/Group III base oils, was slated to start up in April, although producer confirmation was not forthcoming. The refinery where the plant is located was heard to have started operations last December.
Hainan Handi Sunshine Petrochemical said it plans to complete an expansion at its Group II plant on Hainan Island by mid-2019. However, there were unconfirmed reports that the start-up may be delayed.
In India, consumers expected the arrival of several cargoes from the United States this month, which were heard to have been secured at attractive levels, but given recent posted price increases by U.S. producers for domestic products, the question arose whether export prices would also be edging up for fresh transactions.
In the Group I segment, a reduction in supply from a traditional source like Iran into destinations such as India, and an ongoing shutdown in the Middle East, have led to a tightening of these grades, but due to attractive Group II prices–often below Group I grades–and a push to replace Group I base oils with Group II cuts whenever possible due to performance levels, demand for Group II grades is only expected to intensify.
One exception in this scenario may be Group I bright stock, which is not easily replaced and which was still seeing robust demand in the industrial and marine segments.
There was no update regarding the ongoing outage at a refinery in Yanbu al Bahr, Saudi Arabia, which is a regular source of Group I and II base stocks. The plant was shut down a few weeks ago at the time the refinery was undergoing a turnaround and it was not clear when it would come back on stream, although some reports pointed at a restart date in April.
Competitive pockets of activity continued to be seen in regards to Group III base stocks, as relatively new output from the Middle East has come on the scene in Asia and was competing with local production of Group III oils.
Spot base oil prices in Asia were assessed as generally stable this week, following a number of upward adjustments the previous week on rising bids and offers, and increases by a major regional producer.
Ex-tank Singapore Group I prices for the solvent neutral 150 grade were hovering at $750-$770/t per metric ton, while SN500 was assessed at $760/t-$800/t. Bright stock was holding at $880/t-$900/t, all ex-tank Singapore.
Group II 150 neutral was unchanged at $750/t-$790/t, while 500N was mentioned at $770/t-$810/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was unchanged at $640/t-$670/t, and the SN500 grade was holding at $620/t-$640/t. Bright stock was steady at $780/t-$800/t, FOB Asia.
Group II 150N was heard at $600/t-$620/t FOB Asia, while the 500N and 600N cuts were near $610/t-$630/t, FOB Asia.
In the Group III segment, the 4 centiStoke grade was holding at $825/t-$865/t and the 6 cSt at $835/t-$885/t. The 8 cSt grade was assessed at $720/t-$750/t, FOB Asia for fully-approved product.
Upstream, oil prices slipped on Thursday, but bounced back from session lows following President Trumps tweet requesting OPEC to increase production and lower the price of crude. Futures were also pressured down by an unexpected climb in U.S. crude inventories and ongoing concerns about a global economic slowdown.
Brent May futures were trading at $67.16 per barrel on the London-based ICE Futures Europe exchange on March 28, down from $67.94/bbl on March 21. By comparison, futures were trading near $60/bbl on Jan. 17, 2019.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.