Asia Base Oil Price Report(OCTOBER 25, 2019)

In a generally downcast base oil market, there was a glimmer of hope sparked by prospects of a potential resolution to the United States-China trade dispute. The impasse between the two feuding trading partners has had a negative impact to general economic conditions in the region, and more specifically, it has dampened base oil and lubricant demand.

 

Despite a more optimistic outlook based on hopes of the two nations coming to an agreement, base oil activity in China continued to be fairly muted as importers have assumed a very cautious attitude in terms of how much product to secure, as they tried to avoid the risk of ending the year holding hefty stocks.

 

There were expectations that base oil requirements would remain lackluster in November and December, but could pick up in the new year as inventories are likely to be depleted by then.

 

Nevertheless, some import activity went on as usual, with a 6,000 metric ton cargo of API Group III base oils from Abu Dhabi National Oil Company (ADNOC) arriving in China last week. Prices for Group III cuts have been very competitive and sometimes below Group II grades, resulting in lower demand for Group II offers from regional suppliers.

 

Despite prevailing downward pressure on prices due to the supply length, it was heard that regional producers were holding on to current offer levels and were reluctant to reduce prices as margins continued to be compressed by firm crude oil and feedstock values.

 

In order to deal with the high production costs of base oils and weakening demand, participants expected refiners to either cut operating rates in order to avoid bulging inventories and losses at the end of the year, or stream more feedstocks into production of transportation fuels.

 

Those refiners who have the capability to manufacture low-sulfur marine fuels – which are expected to see an increase in demand once the IMO 2020 rules are implemented – may see an opportunity to produce more marine fuel oil and trim base oil output, sources said.

 

There was also talk about Chinese refiners cutting refinery run rates because of the soaring costs of freight for crude imports over the last couple of weeks. Crude oil transportation rates have jumped, severely squeezing refining margins as companies are avoiding the use of nearly 300 tankers on fears of violating sanctions against OPEC members Iran and Venezuela.

 

Another sign that base oil supply was exceeding demand in the region was the fact that a sales tender held by Formosa Petrochemical Corp. ended without being awarded as bids were considered too low, according to reports.

 

Last week, the Taiwanese producer offered a 4,000 metric ton cargo of API Group II base oils for November lifting. Bids were heard to have come in between $10-20 per metric ton below the current average for spot transactions on an FOB Asia basis. A previous tender involving approximately 4,000-6,000 tons of Group II base oils also floated by Formosa for October loading met a similar fate in that it went unawarded.

 

Spot prices in Asia were largely unchanged, as buyers pushed for lower numbers and sellers held on to their positions, resulting in limited business.

 

Ex-tank Singapore Group I prices for the solvent neutral 150 grade were steady between $720/t-$740/t, and the SN500 was heard at $770/t-$790/t. Bright stock was hovering at $860/t-$880/t, all ex-tank Singapore.

 

The Group II 150 neutral was unchanged at $760/t-$780/t, while the 500N was also steady at $770/t-$790/t, ex-tank Singapore.

 

On an FOB Asia basis, Group I SN150 was holding at $600/t-$620/t, and the SN500 grade was assessed at $560/t-$580/t. Bright stock was mentioned at $740/t-$760/t, FOB Asia.

 

Group II 150N was gauged at $570/t-$590/t FOB Asia, while the 500N and 600N cuts were unchanged at $580/t-$600/t, FOB Asia.

 

In the Group III segment, the 4 centiStoke and 6 cSt were steady this week at $770-$800/t and $780/t-$825/t, respectively. The 8 cSt grade was hovering at $690/t-$720/t, FOB Asia for fully approved product.

 

Upstream, crude oil futures strengthened on a surprise drop in U.S. crude supplies, reflecting an increase in demand. West Texas Intermediate crude futures flirted with the $56 per barrel level for the first time in almost a month, showing the biggest increase since the attacks on Saudi Arabian crude facilities. Oil has been under pressure since late April as the U.S.-China trade dispute dampened the demand outlook, leading to rising global supplies.

 

On Oct. 24, Brent December futures were trading at $61.52 per barrel on the London-based ICE Futures Europe exchange, compared to $58.99/bbl on Oct. 17.