Asia Base Oil Price Report

It appeared to be a transitional week in the Asian base oils market, with developments partly thwarted by concerns over the results of the Brexit referendum, the start of summer holidays, and the Ramadan observance in several countries.

While base oil prices for spot transactions were largely stable during the week, participants appeared hesitant to conclude business until the results of the referendum on the United Kingdoms possible exit from the European Union were announced on June 24.

Adding to the sense of uncertainty over price trends for the next few weeks was the fact that demand has started to slow in Asia, largely due to the start of the summer and the traditional lull that follows the active spring lubricant production season.

Worries about supply tightness seemed to be temporarily superseded by questions on whether demand would continue to support price ideas, which have been on an upward trend since March this year.

In the API Group II segment, for instance, the spot price of the 150 neutral cut had been assessed at $400 per ton-$430/t FOB Asia in early March, while prices are hovering around $540/t-$560/t FOB Asia this week. The 500N grade was gauged at $510/t-$530/t FOB Asia in March, and has climbed to levels around $710/t-$730/t FOB Asia.

Fresh base oil requirements in China and other key markets have been less robust than last month, partly because inventories have been replenished and several deep-sea cargoes were expected to arrive at the end of this month or in early July.

There were a number of United States-sourced Group II cargoes, and a parcel of about 8,000 tons of Polish Group I oil expected in China, while a few Group III parcels from the United Arab Emirates and Spain were due to arrive in India, and the added supply was weighing on price ideas in the region.

Group II supply was anticipated to remain limited on a regional level as Taiwanese producer Formosa Petrochemical embarked on a two-month turnaround this month. Formosa's base oil plant in Mailiao can produce 600,000 metric tons per year of Group II products, according to LubesnGreases Guide to Global Base Oil Refining.

Formosa has built inventories to cover most contractual requirements during the outage, but has suspended spot shipments into China and reduced volumes shipped under contract to several receivers.

Market participants are also concerned about the economic situation in China and other economies in the region, as prospects of growth for the second half of the year appear lackluster.

Chinas official purchasing managers index for May was unchanged at 50.1 from the previous month, and analysts said the government needs to implement fresh fiscal measures along with a prudent monetary policy to prevent the economy from slowing down.

In Japan, the Nikkei manufacturing PMI fell to a 40-month low of 47.7 in May from 48.2 in April - mostly due to the impact of the Kumamoto earthquake on consumption of manufactured goods - and there is talk that

Japan will announce a postponement of the consumption tax hike planned for this year before the House of Councilors (or Upper House) elections in July.

Another matter that base oil players were paying close attention to was the predictions by the World Bank and other organizations that crude oil values would not advance significantly this year, as U.S. inventories and production remain high and global demand is not expected to outpace supply. The World Banks latest forecast mentioned average oil prices of $41 per barrel this year, down from $51per bbl predicted in January.

Meanwhile, Saudi Arabias new energy minister, Khalid Al-Falih, said that the country would be seeking to maintain a balance between supply and demand and that OPEC would not return to targeting a specific price for oil.

Brent futures continued to zigzag close to the $50 per bbl mark during the week. Oil prices were very volatile on Thursday, and on Friday they sank after the results of the referendum decided that Britain would leave the EU. Crude oil prices slid more than 6 percent in early trading in Asia, with the dollar rising sharply against the British pound, and the impact on financial markets was expected to be significant in coming days.

ICE Brent Singapore futures closed at $48.68 per bbl in afternoon sessions on June 27, compared to $50.20 per bbl on June 20.

With base oil activity easing up at the end of the month, and July discussions just starting, spot base oil prices remained fairly stable week-on-week.

On an ex-tank Singapore basis, the Group I solvent neutral 150 grade was steady at $530/t-$550/t. The SN500 was also unchanged at $640/t-$660/t, while bright stock was holding at $1,030/t-$1,050/t.

The Group II 150N was assessed at $570/t-$600/t, and the 500N at $750/t-$760/t ex-tank Singapore.

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

LubesnGreases Publications shall not be liable for commercial decisions based on the contents of this report.