Some participants noted that refiners may resort to trimming production rates to manage inventory levels, and stream more raw materials into fuel output. It was not immediately clear whether any producers have started to implement output reductions.

A turnaround at a base oil plant in South Korea was also expected to reduce regional spot availability. S-Oil was heard to have planned a turnaround at its API Group II and Group III plant in Ulsan in March. The plant can produce one million metric tons per year of Group II and slightly below one million t/y Group III base oils, according to LubesnGreases Global Guide to Base Oil Refining. It was not clear whether the turnaround would be affecting all of the refiners output, but there was talk that the outage would result in reduced spot availability, although this could not be confirmed with the producer directly.

The effects of a turnaround at a plant in Saudi Arabia have not been very obvious in Asia, despite the fact that the producer regularly exports to locations such as India and China. This is partly because there is also a supply glut in other regions and buyers are able to source sufficient product from the United States and South Korea, among others. Sources said that there have not been any shortages noted due to the turnaround at the Saudi plant, but there were reports that the producer would allocate volumes to ensure the fulfillment of contracts moving forward.

Import activity into China was heard to have picked up following the Lunar New Year in early February, but it was not as robust as expected because most local plants were heard to be running at optimum rates.

The start-up of new facilities was also anticipated to result in a reduction of import volumes in coming years, although China was heard to be a long way from becoming self-sufficient.

While long supply continued to hamper the upward move of base oil prices in Asia, crude oil values, which have increased substantially compared to earlier in the year, where squeezing producers margins.

Crude oil futures were trading in a narrow range earlier in the week, with Brent hovering around $65 per barrel, but became more volatile on Thursday, as numbers were boosted by ongoing OPEC-led supply cuts and reduced crude exports due to U.S. sanctions against Venezuela and Iran, and at the same time were also capped by rising inventories in the U.S.

Crude futures also tracked the slump in equity markets after the European Central Bank adjusted down its economic growth forecast for the region.

Brent May futures were trading at $66.33 per barrel on the London-based ICE Futures Europe exchange on March 7, up from $65.98/bbl on Feb. 28. The benchmark had risen as high as $67/bbl in early trading on Thursday.

Base oil spot prices in Asia were mixed, with some assessments having been revised down to reflect current discussions, as some sellers tried to entice buyers with attractive numbers.

Ex-tank Singapore prices for Group I solvent neutral 150 were steady at $740-$760/t per metric ton, while SN500 was holding at $750/t-$790/t. Bright stock was heard at $870/t-$890/t, all ex-tank Singapore.

Group II 150 neutral was assessed down by $10-20/t at $740/t-$780/t, while 500N was down by $10/t at the high end of the range at $760/t-$800/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was lower by $20/t at $630/t-$670/t, while the SN500 was hovering at $600/t-$620/t. Bright stock was unchanged at $780/t-$800/t, FOB Asia.

Group II 150N was steady at $590/t-$610/t FOB Asia, while the 500N and 600N cuts were heard near $600/t-$620/t, FOB Asia.

In the Group III segment, the 4 centiStoke grade was holding at $820-$860/t and the 6 cSt at $830/t-$880/t. The 8 cSt grade was assessed at $710/t-$740/t, FOB Asia for fully-approved product.

In industry news, Saudi oil company Saudi Aramco is in the process of solidifying its marketing strategy to offer global supply of all base stocks produced by its affiliates. Were collaborating to deliver new solutions that meet the needs of our customers – and the needs of evolving markets – with consistent quality and reliable supply from refineries located strategically around the world, the company stated on its website. Aramco launched a family of base oils brands in Feb. 2017: aramcoDURA (Group I), aramcoPRIMA (Group II) and aramcoULTRA (Group III).

In South Korea, Aramco Overseas holds 63.4 per cent of the common stock of refiner S-Oil, with the remaining shares traded on the Korean Stock Exchange. S-Oil owns and operates an integrated refining lubricants and petrochemicals complex in Ulsan and has been granted exclusive marketing rights for the Aramco branded base oils aramcoDura, aramcoPrima and aramcoUltra in Europe and Asia-Pacific.

Saudi Aramco Base Oil Co. (Luberef), which operates base oil plants in Jeddah and Yanbu al Bahr, Saudi Arabia, will continue to market the Aramco brand Group I and II base oils in the Middle East, the Gulf Cooperation Council member states and Africa.

Aramco also owns Motivas operations in the U.S., including its Port Arthur, Texas, refinery, which houses the largest base oil plant in the country. Motiva will continue marketing its own brand of Group II and III base oils under the STAR brand for the time being, but may rebrand its products at a later date, according to market sources. Phillips 66 continues as the exclusive marketer of S-Oils Ultra-S Group III base oils in North America.

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

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