Asia Base Oil Price Report（NOVEMBER 1, 2019）

 

Suppliers said that there was reasonable buying interest for spot cargoes, but most buyers were looking for small parcels to meet day-to-day requirements and not accumulate large inventories so as to avoid tax repercussions at the end of the year.

 

Import activity in China – one of the region's key markets – was subdued and while contract cargoes continued to be received as scheduled, there was tepid appetite for spot cargoes. Nevertheless, light viscosity grades seemed to be commanding more attention than their heavier counterparts as lubricant manufacturers alter formulations for the winter months and require the lighter cuts.

 

Taiwanese producer Formosa Petrochemical was heard to have shipped its regular contract cargoes to China, but had reduced the spot volumes shipped in October as compared to its regular spot allotment.

 

Participants said that aside from the typical slowdown that the market tends to experience in the fourth quarter, this year demand has been affected by the perception that the market is oversupplied – which means buyers are confident that they can find all the product they need – together with global economic uncertainties.

 

The ongoing trade dispute between the United States and China, coupled with low consumer confidence, has dampened activity in several manufacturing segments, including the automotive sector, and this, in turn, has led to a decrease in additives, lubricants and base oils demand in Asia.

 

Asian producers were facing a significant challenge when trying to sell product within the region, as most markets seem to be amply supplied. Europe offered some opportunities, but with local base stocks appearing readily available and additional cargoes offered from the U.S., opportunities appeared to be dissipating.

 

Suppliers continued to explore opportunities in North and South America, with small base oil cargoes heard to have been shipped by a Northeast Asian seller to Mexico in late October.

 

In production, there were rumblings that South Korean producer SK Lubricants had shut down one of its production trains for maintenance at its API Group II/III base oil plant in Ulsan, but a source familiar with the company's operations said there was no turnaround taking place, and there would not be any in 2020 either. Even if one of the trains is off line, with four different trains running there would be little impact on the supply chain, the source added. The Ulsan plant has capacity to produce close to 2 million metric tons of base oils per year, according to Lubes'n'Greases Guide to Global Base Oil Refining.

 

It was also heard that Hengli Petrochemical had restarted its Group II/III base oils plant in Dalian, China, following an unplanned outage that lasted approximately one week in late October.

 

Spot prices in Asia were mixed, with some numbers reflecting downward pressure, some holding steady and others moving up to bring them more in line with current discussion levels and published prices widely regarded as benchmarks.

 

Ex-tank Singapore Group I prices for the solvent neutral 150 grade were stable between $720/t-$740/t, and the SN500 was assessed 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 heard at $770/t-$790/t, ex-tank Singapore.

 

On an FOB Asia basis, Group I SN150 was revised down by $40 per metric ton to $560/t-$580/t to bring prices more in line with current discussions and transaction levels. Along similar lines, the SN500 grade was assessed up by $20/t to $580/t-$600/t. Bright stock was holding at $740/t-$760/t, FOB Asia.

 

Group II 150N was steady at $570/t-$590/t FOB Asia, while the 500N and 600N cuts were assessed slightly higher by $10/t at $590/t-$610/t, FOB Asia.

 

In the Group III segment, the 4 centiStoke and 6 cSt were holding at $770-$800/t and $780/t-$825/t, respectively. The 8 cSt grade was adjusted up by $20-30/t to reflect current business at $720-740/t, FOB Asia for fully approved product.

 

Upstream, crude oil futures remained on a fairly steady course on Thursday, despite bearish fundamentals, with reports showing a rise in U.S. crude oil stocks and weaker manufacturing activity in China.

 

The U.S. Federal Reserve on Wednesday cut interest rates for a third time this year, and it does not plan to implement further cuts unless there is a need to provide an extra incentive to the economy. Rate cuts can be result in bullish trends for oil prices because they can lead to a stronger economy and higher crude oil demand.

 

On Oct. 31, Brent December futures were trading at $60.36 per barrel on the London-based ICE Futures Europe exchange, compared to $61.52/bbl on Oct. 24.

 

In related news, the largest oil refiner in Asia and in China, Sinopec, is considering cutting refinery run rates as of November because soaring freight rates are compressing refining margins, Bloomberg reported. Sinopec operates at least six base oil plants in various locations in China. There was no confirmation forthcoming whether base oil production would be affected.

 

The global shipping industry has seen freight rates soar over the past few weeks as traders and shippers stay away from booking oil tankers owned by Chinese tanker companies that are subject to U.S. sanctions for dealing with oil from Iran, the Bloomberg article explained.

 

Despite the sanctions on Iranian oil, it was heard that some Iranian Group I base oil cargoes continue to trickle into India, although the volumes have significantly diminished since earlier this year when the sanctions went into effect.