Slipping crude oil and feedstock prices offered some relief to base oil producers, as margins had tightened over the past few weeks.
With demand deemed steady, but not particularly robust, and supply considered more than adequate to feed the current buying appetite, suppliers would likely face an uphill battle if they tried to pass on the feedstock price increases down the supply chain. With crude numbers pulling back, however, margins could improve if the trend continues, sources said.
A number of plants in Singapore, South Korea and Taiwan have trimmed operating rates in order to stream more feedstocks into the production of fuels, and manage base stock inventories more rationally. However, if base oil margins were good, there would be no need to run plants at reduced levels, although the rising inventories would remain a problem, sources noted.
Base oil producers were therefore keeping a close watch on crude oil developments. Crude oil prices retreated from the lofty levels seen in late June, when West Texas Intermediate was hovering above $57 per barrel and Brent around $65/per barrel.
On Thursday, Aug. 8, Brent October futures were trading at $57.75 per barrel on the London-based ICE Futures Europe exchange, and were hovering at $61.10/bbl on Aug. 1.
The escalating trade dispute between the United States and China, and prospects of weaker global oil demand due to the stiff tariff barriers between the two largest economies in the world, continued to place downward pressure on oil futures.
One of the sectors that has been hit the hardest by the trade tensions is the automotive sector, with car sales in China plummeting in May because of consumers’ concerns about economic prospects. Sales have recovered slightly due to manufacturer and dealer incentives, but this has resulted in making sales at a loss, in some cases.
As a consequence of the slowdown in industrial segments, base oil and lubricant demand in China has declined, with domestic prices falling to historic lows. API Group I base stocks in particular have seen significant discounts as sellers try to find a home for their products.
Strong competition, not only among Asian base oil suppliers but also between different production regions, remains rampant. Long supply levels in the U.S. and Europe meant that producers would be looking for product outlets elsewhere, while Middle East suppliers have also become major players in all regions.
A tightening of Group I base stocks in India, likely spurred by a lack of product moving there from Iran, has resulted in some Group I shipments being concluded from the U.S. to Indian ports in recent weeks. While India has also received plenty of Group II cargoes of U.S. origin in the past, sources said that prices there were too low to attract many deep-sea Group II cargoes at the moment. Instead, additional shipments of Group I and II base oils were heard loading in Saudi Arabia for Indian destinations, and some for other Asian ports as well. Discussions of Russian Group I material moving to India were also reported.
While Chinese demand for Middle East imports has abated somewhat as compared to earlier in the year – following the start-up of a number of domestic Group II and III base oil plants – there were rumblings that a number of cargoes had been agreed for loading in the Middle East this month, possibly from the Abu Dhabi National Oil Co. and Bahrain Petroleum Co. plants in the United Arab Emirates and Bahrain, respectively.
However, heightened tensions in the Middle East related to the seizing by Iran of a number of oil tankers in the Strait of Hormuz, a key waterway for Middle East oil exports, and the threat by Iran to close the Strait have put some Asian buyers on the lookout for supply elsewhere, in case oil shipments get delayed or cancelled.
Iran has used the threat to close the Strait before. Last year, President Hassan Rouhani said that if the U.S. persisted in its efforts to thwart Irans oil exports, his government would make sure that no country in the region would be able to export oil.
Asian spot base oil prices were largely flat, although they remained weighed down by abundant supply and lukewarm demand levels. Weakening crude oil and feedstock prices added downward pressure. Some participants said that this might be a turning point for pricing, but for the time being, no major fluctuations were reported.
Ex-tank Singapore Group I prices for the solvent neutral 150 grade were cited between $740 per metric ton to $760/t, while the SN500 was at $790/t-$810/t. Bright stock was steady at $880/t-$900/t, all ex-tank Singapore.
Group II 150 neutral was hovering at $770/t-$790/t, while the 500N was assessed at $780/t-$800/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was holding at $610/t-$630/t, and the SN500 grade was heard at $600/t-$620/t. Bright stock was stable at $770/t-$790/t, FOB Asia.
Group II 150N was gauged at $590/t-$610/t FOB Asia, while the 500N and 600N cuts were assessed at $600/t-$620/t, FOB Asia.
In the Group III segment, the 4 centiStoke grade was holding at $800-$830/t and the 6 cSt at $820/t-$865/t. The 8 cSt grade was steady at $710/t-$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.