FocusAsia base oils cautious on crude downturn

28 July 2008 10:49  [Source: ICIS news]

By Anu Agarwal

SINGAPORE (ICIS news)--Asian base oils market sentiment has turned cautious on falling crude values and buyers are arguing for a price drop from current historic highs of $1,500/tonne and over, said base oil buyers and traders on Monday.

Asian base oil values had climbed to $1,500-1,550/tonne CFR (cost and freight) levels in recent weeks amid surging crude and gasoil prices and tight global supply, as many refineries focused on maximising gasoil production.

However, with crude falling to $123-124/bbl and gasoil now pegged at $154/bbl, down 12% from its mid-July peak, base oils buyers were eager to get price relief for August, said a southeast Asian buyer.

Availability should also improve as sellers that were holding on to cargoes are now willing to let them go, said an Indian base oils buyer.

“We see offers from Russia and Turkey - that has not been available in the past few months”, he added.

Base oils prices are not going up any further and sellers are willing to now discuss options, unlike in past months where buyers did not have much choice, said another Asian buyer.

However, sellers held the view that base oils prices would remain strong in the short term.

"Base oils prices typically have a time lag of three months once the feedstock values change and therefore base oils prices should be firm in this quarter," said a northeast Asian base oils producer.

The producer also said it was operating its base oils unit at optimum operating rates at present and would continue to do so until the end of the year.

Earlier this year, several regional refineries had cut operating rates at base oils facilities to maximise fuels output due to that sector's higher margins and the focus on maximising diesel production.

Base oils are used to make automobile and industrial lubricants and transformer oils.

Large Asian base oils producers include ExxonMobil, Shell, SK Energy, S-Oil, GS Caltex and Nippon Oil.

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By: Anu Agarwal
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