Asia Base Oil Price Report

Further confirmation of price increases trickled into the Asian base oils market while the supply and demand balance continues to tighten.

Some of the support for the higher base oil values has fizzled because of wavering feedstock and crude oil values, but the difficulty in locating spot cargoes given snug regional supply is driving some of the steeper offers.

While crude oil prices have fluctuated over the last couple of weeks, numbers are still well above those registered a couple of months ago, lending support to loftier base oil price ideas.

March Brent futures traded at U.S. $31.06 per barrel on Jan. 21, then climbed to above $40 per bbl in mid-March, and have been fluctuating in the high $30s per bbl ever since.

This week, crude futures jumped as the U.S. Energy Information Administration reported a large and unexpected drop in U.S. crude inventories amid an increase in demand by refineries.

ICE Brent Singapore May futures ended the afternoon trading session at $41.83 per barrel on April 11, up from $38.50 per bbl on April 4.

Despite the fluctuation in crude oil pricing, base oil price ideas have edged up because spot availability of a number of grades is limited, and buyers who are in dire need to purchase product appear willing to yield to the higher offers.

However, there are a few consumers who are holding comfortable levels of stocks and are not in a hurry to step into the market, but would rather watch whether the upward trend will continue, sources said.

The base oil cuts that have experienced the most upward price push are the high-viscosity grades in the API Group I and Group II categories, because of heightened demand for these grades during the spring season.

Additionally, lean inventories at various producers' facilities, together with ongoing and upcoming plant turnarounds, are expected to further squeeze supply.

In Northeast Asia, Taiwanese producer Formosa Petrochemical is expected to shut down its 600,000 metric ton per year Group II facility in Mailiao in mid-June for a two-month turnaround.

As a result, the producer has restricted the amounts of product being shipped to cover contract requirements in China during the month of April, as a means to manage inventories and meet the bulk of commitments later on during the outage.

Formosa has also nominated increases for its list prices for domestic April transactions. The producer lifted its April list prices by 1.36 New Taiwan dollar per liter for its Group II 70 neutral and 150N grades, and by NT$2.28/l for its 500N oil as of April 1. These adjustments follow a decrease for the 70N and 150N cuts and an increase for the 500N oil in March.

In India, it was also heard that Group I price ideas had edged up on tightening supply and the recent upward movement of crude oil prices. Within the Group I category, solvent neutral 150 was mentioned at $450-$470/t CFR India, SN500 was heard at $450-$470/t CFR and bright stock was traded at $930-$950/t CFR.

The Group II oils showed the biggest hike as they surged $20-$40/t, depending on the grade, to levels around $510-$530/t CFR India for the 150N and $610-$640/t CFR for the 500N.

While most Asian buyers appear eager to discuss May cargoes, there is some hesitation as prospects in the downstream lubricants markets are not so clear.

Spring and summer demand for lubricants is typically healthy, but given some macroeconomic concerns and prospects of flat demand in several segments such as the industrial sector, consumers are not keen on keeping high base oil stocks.

Buying and selling discussions were taking place at stable to firmer levels, depending on the base oil cut. The heavy-vis oils in the Group I and Group II tiers underwent upward revisions as sellers hiked their offers and buyers had no choice but to move bids up to secure spot cargoes, which were limited in Northeast Asia.

On an ex-tank Singapore basis, a couple of price assessments were adjusted up in line with numbers seen on the regional export market. The Group I SN150 was assessed up by $10/t at $520/t-$540/t ex-tank Singapore, but the SN500 was unchanged because it had moved up the previous week and was hovering at $580/t-$600/t. Bright stock was also unchanged at $1,000/t-$1,020/t ex-tank Singapore.

The Group II 150N cut inched up by $5/t again this week to $500/t-$520/t ex-tank Singapore, and the 500N was also up by $5/t at $605/t-$625/t ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was up by $10/t at the low end of the range because participants said material at $400/t was no longer available; prices were therefore assessed at $410/t-$430/t; the SN500 was unchanged at $430/t-$450/t FOB after edging up the previous week; the same situation applied to bright stock, which was holding at $880/t-$900/t FOB this week.

In the Group II category, the 150N cut moved up by $25/t this week as it was being sold in bundles with the high-vis cuts and has therefore tightened, with numbers heard at $430/t-$460/t FOB Asia, while the 500N underwent the biggest upward adjustment and was up by $35-$45/t at $560/t-$590/t FOB Asia.

Meanwhile, the Group III oils remained steady as prices were thought to be reflective of current supply/demand conditions. Group III availability continues to outstrip demand, and this is keeping values in check, sources said.

The 4 centiStoke and 6 cSt oils were therefore unchanged at $850/t-$880/t FOB Asia, and the 8 cSt grade was hovering at $600/t-$620/t FOB Asia, but trading of these grades was muted.

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

Lubes'n'Greases Publications shall not be liable for commercial decisions based on the contents of this report.