Crude oil futures have risen to four-month highs as OPEC members have agreed to a production cut, and even Russia – which does not belong to OPEC – appeared willing to cooperate.

However, there are some OPEC countries such as Libya, Nigeria and Iran that appear exempt from having to implement output cuts and in fact, hope to increase production next year, according to an International Energy Agency report.

A significant rebound in supply from Libya and Nigeria and further growth from Iran would suggest that bigger cuts would have to be made by others, such as Saudi Arabia, to meet the new output target, the IEA noted.

Furthermore, global demand has seen a sharp drop this year, with growth slowing from a five-year high in the third quarter of 2015 to a four-year low in the third quarter of this year, according to the IEA.

This means that crude oil prices could remain volatile for a while, especially since many details of the output deal have yet to be worked out, such as individual country allocations, implementation dates, etc.

The uncertainty is translating into subdued trading in the base oil market, with participants preferring to delay transactions until more clarity on price trends is established, or at least until oil futures stabilize.

This week, crude oil futures recovered after a small dip caused by government data showing the first rise in U.S. crude stockpiles in six weeks, coupled with a report from OPEC showing its production had risen to the highest level in at least eight years.

ICE Brent Singapore December futures were trading at U.S. $51.89 per barrel on Oct. 17, compared to $51.64/bbl for November futures on Oct. 10.

Both base oil buyers and sellers have to tread carefully as neither side wants to end the year with high inventories, and demand for finished lubricants appears to be less vigorous than expected, causing a slowdown in base oil demand.

Domestic production rates of base oils have improved in China over the last few months, and the country also imported significant volumes from South Korea, Taiwan, Singapore and Russia during the first half of the year.

This has resulted in ample availability of most grades, and importers are therefore more careful about the quantities they are currently committing to. There was a reduction of around 25 percent of import volumes during August and September, and imports are also expected to be curtailed in October, according to sources.

While Asian supply of a majority of base oils is deemed more than adequate at the moment, there were unconfirmed reports that S-Oil would be shutting its API Group II/III unit in Onsan, South Korea, for a turnaround some time before the end of the year, leading to a tightening of availability.

The extended turnaround of a Chevron plant in the U.S. through November was also expected to constrict global supplies of Group II oils during the last quarter.

API Group II suppliers have been concerned about new capacity coming on-stream in the Middle East, but the latest news suggests that the start-up of new projects may be delayed.

One of these projects is Saudi Aramco Base Oil Co.’s new Group II and bright stock plant in Yanbu, Saudi Arabia – also known as Luberef.

The plant is not expected to start commercializing Group II oils until the third quarter of 2017, a company source said at the ICIS Base Oils conference in Dubai last week. The facility was originally expected to start production in 2015.

Luberef plans to start selling Group II base stocks and phase out production of solvent neutral 150 and SN500 at an existing Group I train, which will be converted for the manufacture of bright stock only. The plant’s Group II capacity will be 708,000 metric tons per year, according to LubesnGreases Global Guide to Base Oil Refining.

Base oil buying and selling was generally subdued this week, with prices remaining largely unchanged on account of limited offers and lukewarm demand.

On an ex-tank Singapore basis, Group I solvent neutral 150 was assessed at between $585 per metric ton and $605/t, while SN500 was steady at $665/t-$695/t. Bright stock was also unchanged at $930/t-$950/t.

Group II 150 neutral was gauged at $585/t-$605/t, and 500N was heard at $765/t-$785/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was holding at $470/t-$490/t while the SN500 was discussed near $590/t-$610/t. Bright stock was assessed at $790/t-$810/t.

In the Group II category, 150N was unchanged at $480/t-$500/t, while 500N/600N was steady at $650/t-$670/t, all FOB Asia.

Within the Group III tier, 4 centiStoke and 6 cSt oils were heard at $790/t-$820/t, FOB Asia, and the 8 cSt grade was close to $650/t-$670/t FOB Asia.

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.