Asia Base Oil Price Report

Softening demand against abundant supply levels continued to weigh on base oil prices in Asia, but an upturn in crude oil values offset some of the downward pressure.

Base oil plant operations in Asia are heavily impacted by the cost of energy, and this cost is tightly linked to crude oil values, an expert said at the ICIS Pan American Base Oil & Lubricants conference in Jersey City, New Jersey, in the United States last week. While the higher crude oil values do not impact base oils overnight, refiners do watch price trends closely to forecast possible feedstock cost fluctuations.

Crude oil futures edged higher on Thursday, with the market mood improving as OPEC forecast a supply deficit next year, reverting the downward price trend seen the previous day, which was prompted by a surprise increase in United States crude inventories.

On Thursday, Dec. 12, Brent February futures were trading at $64.38 per barrel on the London-based ICE Futures Europe exchange, compared to $63.51/bbl on Dec. 5.

In related crude oil news, the market value of Saudi Aramco has reached $2 trillion, as shares in the worlds biggest oil producer rose by another 10 percent on their second day of trading. Last week, the oil giant, which produces more than a tenth of global crude supply, raised $25.6 billion. Saudi Arabias royal family is privatizing assets as part of a plan to move the kingdom away from its reliance on oil. The money raised from the sales will be used for non-energy investments, BBCNews.com reported.

In terms of base oil supply, ample availability in the region has led to reduced operating rates at several locations, with producers in Taiwan, South Korea, Singapore and Thailand heard to have scaled down run rates at their base oil plants in order to avoid high inventories at the end of the year.

However, this is not a phenomenon restricted to Asia, as plants in other regions were also running at reduced rates, with a global average of 75 percent being commonplace, according to an industry expert speaking at the ICIS conference.

Base oil supply in Southeast Asia has grown over the last couple of weeks as two base oil refiners have restarted operations in Thailand, while a major producer in Singapore was heard to have slightly increased its operating rates, following an operating rate curtailment.

In Japan, a refiner has switched to increased gas oil production due to better margins, and this should result in reduced API Group I output, according to sources.

End-users were also focusing on lowering stock levels before Dec. 31 so as to avoid tax repercussions on standing inventory. As a result, buying interest remained lackluster, although some buying inquiries have emerged in China as buyers were looking to secure product to be delivered ahead of the Lunar New Year holidays in late January.

In India, the arrival of cargoes from the United States, South Korea and the Middle East, together with the availability of attractively-priced domestic product, resulted in subdued appetite for additional imports.

In Taiwan, Group II producer Formosa Petrochemical was heard to have decreased some of its list prices for December shipments of base oils, while maintaining prices for two of its grades. The producers 500 neutral has been marked down by New Taiwan dollars (NT$) 0.20 per liter, but the price of the 70N and 150N grades remained unchanged from November.

While the ample supply and tepid demand continued to place downward pressure on prices in Asia, steeper crude oil numbers offset some of this pressure, with base oil spot indications largely unchanged week on week.

Ex-tank Singapore Group I prices for the solvent neutral 150 grade was holding at $680/t-$700/t, and the SN500 was at $730/t-$750/t. Bright stock was steady at $820/t-$840/t, all ex-tank Singapore.

The Group II 150 neutral and 500N were assessed at $720/t-$740/t and $730/t-$750/t, respectively, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was heard at $540/t-$570/t, and the SN500 grade was holding at $550/t-$560/t. Bright stock was steady at around $700/t-$720/t, FOB Asia.

Group II 150N was gauged at $570/t-$590/t FOB Asia, while the 500N and 600N cuts were near $590/t-$610/t, FOB Asia.

In the Group III segment, the 4 centiStoke and 6 cSt were heard at $770-$800/t and $780/t-$825/t, respectively. The 8 cSt grade was hovering at $720-740/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.