Asia Base Oil Price Report（JANUARY 3, 2020）

New Year’s celebrations and the absence of many players brought about a muted trading scene and offered a respite to those who have been anxiously watching market developments over the past few months.

 

The base oil business has been burdened by oversupply and lackluster demand for most of 2019, but the arrival of a new year and expectations of a pick-up in requirements as buyers return to the marketplace spread a touch of optimism among suppliers.

 

A majority of producers and consumers prefer to end the year holding lean inventories to avoid tax repercussions, but buyers were expected to step back into the market to replenish product once they returned to business in the next few days. However, any upside in pricing will likely be limited by the persistent extra supply.

 

One factor that was generating some concern was the start of the Lunar New Year on Jan. 25 – much earlier than in previous years – allowing for a much shorter period in which to conclude transactions between the two festive seasons. The Lunar New Year festival will last till Feb. 8.

 

Another element that was weighing on participants' mind was the rise of crude oil and feedstock values, which have been trending up in the last couple of weeks on expectations of a resolution to the United States-China trade dispute and improved economic prospects in the region.

 

While the trade tensions have mainly impacted business between the two countries, other nations have also been affected as they supply products and services related to imports and exports between China and the U.S.

 

The two countries announced in mid-December that they had reached a provisional agreement, leading to the implementation of phase one of the said agreement, following almost a year and a half of tensions and tit-for-tat tariffs.

 

The deal was expected to lend support to crude prices because it could help improve the Chinese economy, which has slowed down since the beginning of the trade dispute.

 

Crude oil futures showed one of the biggest jumps in three years on the last day of 2019, supported by the combined force of OPEC+ production cuts and the improvement of trade relations between the U.S. and China, OilPrice.com reported. Trading platforms were closed on Jan. 1 for the New Year holiday.

 

On Thursday, Jan. 2, Brent March futures were trading at $66.28 per barrel on the London-based ICE Futures Europe exchange, compared to $66.50/bbl for February futures on Dec. 19.

 

The implementation of the IMO 2020 regulations that require vessels to run on fuels that have a 0.5 percent or lower sulfur content, or for operators to install pricey scrubbers if they choose to use higher sulfur fuels, was also expected to impact both the crude oil and the base oils market, not to mention freight rates as ship owners and operators face increased costs.

 

Heightened demand for sweet crude oil – the type of oil required for the production of low-sulfur marine fuel – was likely to put pressure on prices to catapult to higher levels.

 

Additionally, those refiners that have the capability to manufacture the low-sulfur marine fuels may opt for streaming more feedstocks into the production of these fuels if prices are more attractive than those of base oils, or use base oils for fuel blending.

 

Base oil producers were also anticipated to continue running plants at reduced rates amid weak margins as they have been over the last several months to avoid a build-up of inventories.

 

If a trade agreement between the U.S. and China were reached in 2020, it could lend impetus to the automotive segment, which has suffered from the implementation of new tariffs over the last 18 months. The slowdown has significantly impacted demand for base oils and finished lubricants from the automotive and industrials sectors in 2019.

 

For the time being, and in the absence of transactions, spot base oil prices in Asia were assessed largely steady this week.

 

Ex-tank Singapore Group I prices for the solvent neutral 150 grade was holding at $680/t-$700/t, and the SN500 was at $730/t-$750/t. Bright stock was heard at $820/t-$840/t, all ex-tank Singapore.

 

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

 

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

 

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

 

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