The downward price trend observed in the Asian base oil market over the past few weeks gained momentum, with several grades succumbing to the pressure.
The recent ups and downs on the crude oil front deepened the sense of uncertainty regarding base oil price direction for buyers in the region, driving many to adopt a wait-and-see attitude toward purchases.
Despite the fact that crude oil futures staged a rebound – hitting six-week highs above U.S. $48 per barrel during the week – other fundamentals, such as supply/ demand imbalances and prospects of waning requirements, led to the emergence of lower price ideas for some of the heavy-viscosity cuts.
Within the API Group I segment, bright stock was probably the hardest hit, as demand appears to be weakening ahead of the cold weather in Northeast Asia and the start of a less active fall season in downstream applications. Sharp drops of up to $100 per metric ton were reported for deals transacted on an FOB Asia basis compared to July levels.
Likewise, prices for Group II grades fell on the back of softer demand and adequate inventories, even though the base oil plant of one of the main producers in Northeast Asia is still shut down for maintenance.
Formosa Petrochemical’s 600,000 metric ton per year Group II plant in Mailiao, Taiwan, was not expected to be back on stream until the end of August or early September, when a routine turnaround will be completed. Buyers anticipated spot supply in Northeast Asia to improve considerably once the plant resumes production and the producer has enough time to build inventories.
Consumers, therefore, were confident that prices would weaken in coming weeks and preferred to delay purchases as long as possible.
Uncertain economic prospects in several countries were also seen as contributing factors to the slowing business pace.
Demand in two key markets, China and India, has been lackluster due to a slowdown in industrial activity in the case of China, and logistical problems caused by the monsoon weather in India.
Chinese importers and local producers were holding sufficient inventories to meet short-term domestic demand, with less buying interest for imported material noted among end-users, according to sources.
Likewise, in India, buying appetite for base oils was diluted by the presence of satisfactory inventory levels and problems delivering and receiving material due to the monsoon rains.
Base oil prices in India were deemed flat to slightly softer, with Group I solvent neutral 150 cargoes changing hands at $560/t-$580/t CFR India and SN500 at around $600/t-$620/t CFR India. Bright stock was being discussed at close to $840/t-$880/t CFR India.
Group II indications were largely stable at $580/t-$600/t CFR India for 150 neutral and at around $740/t-$770/t CFR India for 500N.
Asian base stock spot assessments were mixed this week, with some grades moving up to reflect bids and offers, some cuts remaining unchanged, and others edging down on weaker market conditions.
On an ex-tank Singapore basis, the Group I SN150 cut was adjusted up in line with the published ranges, widely regarded as benchmarks, to $590/t-$610/t, while the SN500 was assessed unchanged at $680/t-$700/t. Bright stock fell to $960/t-$980/t, reflecting a $40/t drop week on week.
The Group II 150N was down by $10/t at the lower end of the range at $590/t-$610/t, while the 500N was steadfast at $780/t-$800/t ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was revised up by $30/t to reflect current discussion levels at $480/t-$500/t, but the SN500 inched down by $20/t to $600/t-$620/t FOB on softer demand. Prices for bright stock dropped by $80/t to $810/t-$830/t FOB due to weaker fundamentals.
In the Group II category, the 150N cut slipped by $20/t to $530/t-$550/t FOB Asia, while the 500N/600N was down by $30/t at $690/t-$710/t FOB Asia.
Within the Group III tier, the 4 centiStoke and 6 cSt oils were revised down by $20/t to $820/t-$850/t FOB Asia, while the 8 cSt grade was heard up by $10/t at the top end of the range at $660/t-$680/t FOB Asia.
As mentioned, crude oil futures rose to six-week highs as expectations grew about a possible agreement among the worlds biggest oil producers to freeze output.
The higher values of West Texas Intermediate futures were thought to be the result of an increase in European orders of U.S. crude to take advantage of arbitrage opportunities, given the wide spread between the United States and European benchmarks.
ICE Brent Singapore October futures were trading at $50.01 per bbl in afternoon sessions on August 22, compared to $47.48 per bbl on Aug. 15.
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.