Asia Base Oil Price Report

With just several days until the New Year's holiday, participants tried to finalize business as activity was expected to come to a standstill until the first week of January.

There were mixed trends affecting spot prices, as some sellers were hoping to attain higher levels on the back of firmer crude oil and feedstock costs, while buyers maintained that product was plentiful and it was possible to find yearend bargains.

While some segments of the market did appear to be oversupplied, such as the API Group III tier, others were on the tight side, particularly the heavy-viscosity grades in the Group I and Group II categories.

This trend is partially due to worldwide rationalization of Group I production units. But this was thought to be a carry-over from earlier in the year, when Taiwanese producer Formosa Petrochemicals Group II base oil plant underwent an extended turnaround, limiting spot supply into the region.

In fact, Formosa was heard to have shipped its regular volumes of base oils to China under contract in December - which typically total around 30,000 metric tons - but to have not supplied any spot cargoes, according to sources.

Additionally, some producers have diverted their feedstock streams to produce more fuel and heating oil, in detriment to base oil output, which has resulted in reduced spot tonnage in recent weeks.

Within the Group I category, bright stock was attracting increased buying interest for January cargoes, and indications have moved up. Buying and selling ideas were hovering near U.S. $800 to $810 per metric ton FOB Asia, up $10/t-$20/t from the previous weeks price ideas.

Similarly, bids and offers for the Group II 150 neutral cut have edged up by $10/t-$20/t, and were heard near $510/t-$520/t FOB Asia.

Looking forward into the first quarter, producers said they needed to take into account potentially higher crude oil prices if the recent deal by OPEC members and Russia to trim production sees implementation. OPEC has agreed to cut output by 1.2 million barrels a day.

While some analysts conjectured that oil values could climb well above $60 per barrel, others said that numbers were likely to teeter between $50/bbl and $55/bbl, similar to current levels.

This week, crude futures came off earlier highs after Libya's National Oil Corp. said pipelines from its western fields had been reopened, following the end of a longstanding blockade. It expects to add 270,000 barrels a day in production in the next three months as protesters agreed to lift the blockade last week.

Conflict and political disputes have cut Libya's production to just 600,000 barrels a day, far below output of 1.6 million before uprisings in 2011, Reuters reported.

Crude moved within a narrow range during the week, with ICE Brent Singapore February futures trading at U.S. $54.90 per barrel on Dec. 26, compared to $54.98/bbl on Dec. 20.

Other factors that were of concern to base oil producers and consumers were the expectations that base oil demand in Asia would remain largely flat over the next few years - with the exception perhaps of India, which may see some growth in certain segments; the slowdown of the Chinese economy; and global financial and political uncertainties.

Consumers may opt for securing small cargoes at the beginning of the year in case requirements from downstream industrial and automotive sectors turns out not to be very strong in the first quarter.

Base stock demand may experience a brief peak ahead of the Lunar New Year holidays, which start on January 28 and are celebrated in many Southeast and Northeast Asian countries, but requirements are likely to taper off during the festivities and immediately after.

Furthermore, many of the cargoes that are expected to arrive before the start of the holiday have already been secured, sources said, which could impact demand in January.

Given the relative lack of active trading, combined with the upward price trend observed in certain segments of the market, prices were assessed as stable to slightly firmer this week and were expected to enter the New Year at comparable levels.

On an ex-tank Singapore basis, API Group I solvent neutral 150 was heard at $590/t-$610/t, while the SN500 and bright stock were steady at $670/t-$695/t and $915/t-$935/t, respectively.

The Group II 150 neutral was unchanged at $590/t-$610/t, and 500N 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 heard at $575/t-$585/t FOB. Bright stock was up by $10/t to $790/t-$800/t FOB.

Within the Group II category, 150N edged up by $10/t on higher discussions to $490/t-$510/t, while 500N/600N was holding at $640/t-$660/t, all FOB Asia.

In the Group III segment, the 4 centiStoke and 6 cSt oils were unchanged at $725/t-$755/t, while the 8 cSt grade was steady at $650/t-$670/t, all 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.