Base oil buyers in Asia have adopted a cautious attitude as they face uncertainties over price direction, leading to few transactions being concluded.
Volatile crude oil prices, along with a slight slowdown in demand, is starting to place downward pressure on spot price ideas, with buyers hoping to obtain cargoes at lower values.
However, producers are generally reluctant to reduce offers as they are hoping to maintain margins, which had been weakened substantially during the last quarter of 2015 and the first quarter of this year, when base oil prices edged down.
A regional tightening of supplies and rising crude oil prices have allowed refiners to gradually raise spot values since April, but the momentum is starting to wear off.
The higher base oil values were supported by a major producers extended turnaround in Taiwan, which resulted in tighter availability of API Group II oils in Asia, and triggered a number of shipments from the United States and Europe.
Formosa Petrochemical started a two-month turnaround at its Group II plant in Mailiao in late June, and the producer restricted the number of spot cargoes shipped within Asia, also limiting volumes sold under contract.
Preparations for the turnaround coincided with a period of healthy demand in both Northeast Asia and Southeast Asia, where both suppliers and consumers had started the year with very low inventories.
Formosa is anticipated to resume production in late August, which should help alleviate some of the product tightness. This will also coincide with the start of the typical lull in demand from various downstream segments as the fall season gets underway.
There are reports that supply of Group II and Group III oils in Asia is beginning to lengthen, and there is concern that newly added capacity in the Middle East will exacerbate the imbalance, as suppliers there are looking for product outlets that are typically served by Northeast Asian producers.
Base oil prices in Asia were stable to slightly softer, with little product changing hands as buyers preferred to assess market conditions before committing to purchases.
On an ex-tank Singapore basis, the Group I solvent neutral 150 cut was unchanged at $550 per metric ton-$570/t, while the SN500 was assessed at $680/t-$700/t. Bright stock was holding at $1,000/t-$1,020/t.
The Group II 150 neutral was steady at $590/t-$620/t, and the 500N was assessed at $780/t-$800/t ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was heard at $450/t-$470/t and the SN500 was at $620/t-$640/t FOB. Bright stock moved down by $10/t to $890/t-$910/t FOB on current discussions.
In the Group II category, the 150N cut was gauged at $550/t-$570/t FOB Asia, while the 500N/600N was unchanged at $720/t-$740/t FOB Asia.
Within the Group III tier, the 4 centiStoke and 6 cSt oils were hovering at $840/t-$870/t FOB Asia, while the 8 cSt grade was heard at $650/t-$680/t FOB Asia.
Upstream, crude oil futures moved up on comments from the Saudi oil minister about possible action by OPEC to stabilize prices, while the International Energy Agency forecasted that crude demand could outstrip supply in the second half of 2016.
However, Iraq and oil majors BP, Shell and Lukoil have agreed to resume investments in oil fields that the foreign groups are developing, which could increase the countrys crude output by 250,000-350,000 barrels per day in 2017, Reuters reported.
ICE Brent Singapore October futures were trading at $47.48 per barrel in afternoon sessions on August 15, compared to $44.78 per bbl on Aug. 8.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LNG Publishing shall not be liable for commercial decisions based on the contents of this report.