Asia Base Oil Price Report（NOVEMBER 29, 2019）

The downward pressure on Asian base oil pricing generated by ample supply and tepid demand was partly offset by strengthening crude oil and feedstock values this week, resulting in a largely static price scenario.

 

Producers reiterated that margins had been compressed over the last few weeks as crude oil values have not retreated significantly, while spot base oil prices have lost sizable territory.

 

Some refiners were resorting to producing more fuels given better returns and decreasing base oil output. This was the case of a major Japanese refiner, who was heard to be trimming base oil operating rates to produce more gasoil, affecting availability of API Group I base oil for export mainly.

 

The different refined products output ratio might also be altered at refineries ahead of the IMO 2020 regulations going into effect on January 1, as operators may increase the production of marine gas oil in response to an expected jump in pricing.

 

Other suppliers were planning plant turnarounds at a time when base stock demand typically declines, or have delayed the start-up of new units, as is the case of a couple of base oil plants in China.

 

Hebei Feitian Petrochemical has delayed the start-up of the second phase of its new Group II and naphthenic base oils plant expansion in Xinji to late December, from an earlier estimate of an August/September start-up.

 

Product availability in China, both from domestic producers and imports, was deemed ample to cover current requirements. There continued to be movements of base oils from Russia and the Middle East, but the volumes have subsided compared to earlier in the year, given plentiful local supply, according to sources.

 

Meanwhile, crude oil prices have edged up again, driven by optimism surrounding a possible resolution of the United States-China trade dispute, which has dampened business in the region since early 2018.

 

Oil futures climbed early in the week, and steadied on Wednesday on an industry report showing a surprise build in U.S. crude inventories, which was counterbalanced by optimism about a possible agreement between the U.S. and China, ending their 16-month trade dispute.

 

Positive sentiment was fueled by comments from U.S. President Donald Trump, who said on Tuesday that the U.S. and China top negotiators had spoken by telephone and agreed to keep working on remaining issues, CNBC.com reported.

 

Expectations that the OPEC and allies such as Russia would maintain their deal to limit supply were also supporting prices.

 

On Nov. 27, Brent January futures were trading at $64.48 per barrel on the London-based ICE Futures Europe exchange, compared to $62.66/bbl on Nov. 21. Trading platforms will be closed in the U.S. on Thursday for the Thanksgiving holiday.

 

The current base oil overhang in the region continued to exert downward pressure on prices, but spot numbers remained generally unchanged during the week as crude oil values inched up and suppliers were reluctant to lower offer levels.

 

At the same time, buying interest was not particularly effervescent because of the approach of the end of the year, when most participants prefer to operate with low inventories and use up existing stocks.

 

There were also concerns that demand would not pick up substantially until after the Lunar New Year holidays, which fall in late January next year. Consumers may delay purchases until after the Lunar New Year, instead of jumping back into the market at the beginning of January as is typically the case.

 

On the other hand, some participants expected discussions to pick up and demand to rise during December as inventories will have been depleted at the end of the year, and end-users will need to have deals concluded and shipments scheduled for arrival before the Lunar New Year.

 

Demand for the high-viscosity grades, however, may remain lukewarm as these cuts are less utilized in winter formulations of lubricants.

 

Several cargoes of Group I and Group II base oils were expected to arrive in India over the next few weeks. A 10-12,000 U.S. Group I cargo was rumored to have been booked for December delivery, while a similarly-sized Group II parcel was said to be on its way to India as well.

 

This week, ex-tank Singapore Group I prices for the solvent neutral 150 grade were assessed at $680/t-$700/t, and the SN500 was at $730/t-$750/t. Bright stock was steady at $820/t-$840/t, all ex-tank Singapore.

 

The Group II 150 neutral and 500N were heard at $720/t-$740/t and $730/t-$750/t, respectively, ex-tank Singapore.

 

On an FOB Asia basis, Group I SN150 was unchanged at $540/t-$570/t, and the SN500 grade was also steady at $550/t-$560/t. Bright stock was hovering at around $700/t-$720/t, FOB Asia.

 

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

 

In the Group III segment, the 4 centiStoke and 6 cSt were gauged at $770-$800/t and $780/t-$825/t, respectively. The 8 cSt grade was hovering at $720-740/t, FOB Asia for fully approved product.