Asia Base Oil Price Report（APRIL 20, 2018）

  Base oil market participants in Asia were somewhat puzzled at the reasons why requirements have not been as consistent at the start of the spring season as in years past.

 

  Demand typically picks up steam in Asia after the Lunar New Year holidays, but this year, activity remained slightly disappointing when participants returned to business in the second half of February, and did not climb to the predicted healthy levels in March and April.

 

  There were some pockets of the market which saw increased buying interest, as buyers were hoping to beat potential price increases when crude oil and feedstock prices started to move up, and replenished inventories ahead of the hikes.

 

  The light-viscosity grades seemed to enjoy heightened demand because they are traditionally used in cold weather lubricant formulations, and this, together with the steeper raw material costs, supported climbing spot indications.

 

  Demand for the high-viscosity grades, on the other hand, lagged behind and offered less support to upward spot price adjustments.

 

  In some countries such as China, lubricant demand from the industrial segment has seen a drop due to more stringent environmental rules, which have resulted in reduced manufacturing rates, or plant closures. This has affected requirements for API Group I grades in particular as they are utilized in several industrial applications.

 

  Lubricant demand from the biggest downstream application – the automotive industry – has been more buoyant in countries such as India, but slightly less so in China, as automotive sales have been less robust than anticipated.

 

  Additionally, it appears that consumers are able to meet base oil needs through term contracts, and are less dependent on spot business. Many of them had padded inventories at the start of the year and are currently drawing from existing stocks, instead of venturing out into the spot market.

 

  Producers had also expected a run on supply as the March-April time frame was replete with various plant turnarounds, and buyers usually want to make sure they secure enough inventories to carry them through the busy shutdown period.

 

  However, buyers did not seem as concerned about possible product shortages as in the past as there are additional sources of base oil that can offer supply to Asian consumers. Middle East producers have been actively shipping product to China and India, as well as other destinations, and the United States was also heard to have increased the volumes shipped to several Asian nations.

 

  The Shell/Qatar Petroleum Pearl gas-to-liquids base oil plant in Ras Laffan, Qatar, was heard to have resumed production after a turnaround in March. The plant can produce 300,000 metric tons per year of Group II and 1,072,000 t/y of Group III base oils, and there were reportedly no supply disruptions noted during the outage.

 

  The Abu Dhabi National Oil Co. base oil plant in Al Ruwais, United Arab Emirates, was heard to be undergoing a turnaround this month, reducing the availability of Group II/III base oils from that origin. The plant has capacity to manufacture 100,000 t/y of Group II and 500,000 t/y of Group III grades.

 

  While suppliers in Asia continued to move up offer levels, buyers have grown increasingly reluctant to accept the higher offers, even though they are aware of the pressure emanating from the feedstock side. Consumers contend that there are too many uncertainties and competition in downstream lubricant segments, and that the higher base oil costs are difficult to recoup.

 

  Even so, some base oil spot assessments underwent upward adjustments this week on steeper raw material costs and higher bid and offer levels. Assessments have also been revised to bring ranges more in line with published numbers largely accepted as industry benchmarks.

 

  Base oil prices in India were heard to have remained generally stable from the previous week, and have not undergone much fluctuation since the beginning of the month.

 

  In terms of ex-tank Singapore numbers, Group I SN150 moved up by U.S. dollars $20 per metric ton to $770/t-$790/t, and the SN500 was revised up by $40/t to $890/t-$910/t. Bright stock was up by $30/t at $960/t-$980/t, all ex-tank Singapore.

 

  Group II 150 neutral was adjusted up by $30-$40/t to $800/t-$830/t, while the 500N cut held at $910/t-$930/t ex-tank Singapore.

 

  On an FOB Asia basis, Group I SN150 was unchanged at $690/t-$710/t, but the SN500 grade underwent an upward revision of $50/t to reflect current discussions and transactions at $830/t-$850/t. Bright stock was also up by $50/t at $880/t-$910/t FOB Asia.

 

  Group II 150N edged up by a more moderate $20/t to $730/t-$750/t, while the 500N/600N was steady at $810/t-$840/t, all FOB Asia.

 

  In the Group III segment, the 4 centiStoke was assessed at $870-$890, and the 6 cSt grade was up by $20/t from a week ago at $850/t-$870/t. Conversely, the 8 cSt was slightly down by $30/t at $780/t-$800/t, FOB Asia, due to ample supply and sluggish demand.

 

  Upstream, crude oil prices again soared to their highest level in more than three years as reports indicated that United States stockpiles had dropped and gasoline demand had jumped. Crude futures are now trading at levels not seen since the market crashed in November 2014, when the Organization of the Petroleum Exporting Countries (OPEC) had not yet implemented production curbs to prop up oil prices.

 

  Geopolitical tensions and the potential renewal of U.S. sanctions on Iran also boosted prices, while declining oil production in Venezuela offered additional support.

 

  On Thursday, April 19, Brent June futures were trading at $74.26 per barrel on the London-based ICE Futures Europe exchange, compared to $71.76 per barrel on April 12.

 

  Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.