Asia base oils find support from crude; Group II in ample supply

SINGAPORE (ICIS)–Asia’s spot base oils prices will likely find support from recent spikes in crude oil values, with Brent crude trading at above $66/bbl.

Automobiles in Beijing, China (Photo by Ng Han Guan/AP/REX/Shutterstock (7065974b)

 – Strengthening crude and gas oil prices may boost base oils

 – Demand to pick up from H2 February post-Lunar New Year holiday

 – Group I SN500 supply relatively tighter than Group II 150/500N

in the week ended 15 February, Group I average prices for SN150, SN500 and brightstock were unchanged at $665/tonne FOB (free on board) Asia; $607.5/tonne FOB Asia; and $792.5/tonne FOB Asia, respectively, according to ICIS data.

Group II 150N average prices were assessed at $600/tonne FOB NE (northeast) Asia, flat week on week; while CFR (cost & freight) NE (northeast) Asia prices edged up by $5/tonne to $622.5/tonne.

Group II 500N average prices inched up by $5/tonne over the same period to $607.5/tonne FOB NE Asia and $635/tonne CFR NE Asia, ICIS data showed.

Some refiners may switch to producing gas oil from base oils due to better margins following gas oil’s price recovery since January. The consequent reduction in base oils supply could provide support to regional prices.

As of 18 February, gas oil prices stood at $596.5/tonne FOB Singapore.

Base oils is used to produce lubricants for car engines, industrial machinery and rubber processing oil; while gas oil is used in the construction sector to power excavators, generators, cranes, dumper trucks and other machines and vehicles.

In October and November 2018, several northeast Asian refiners had cut their base oils production by 10-20% to produce more gas oil, when gas oil average prices hit a four-year high of $579.5/tonne FOB (free on board) Singapore on 12 October 2018 before slumping in December of the same year.

Feedstock Spread – Gas Oil and 150N Asia

Demand for base oils in northeast and southeast Asia is expected to pick up from the second half of February after the Lunar New Year holiday in early February, while Indian buyers will likely stock up on inventory before the close of the India financial year in end-March.

Group I SN500 prices may have more upside potential due to tighter supply from the main spot exporters in Japan and Thailand.

Group II base oils supply is expected to remain ample, with market players in India playing down the possibility of a substantial rise in prices.

South Korean and Taiwanese refiners were targeting Group II price hikes for March-shipment cargoes within Asia, including to the Indian market.

A possible shutdown of a Middle East-based refiner in end-February/early March due to problems at upstream facilities is not likely to have much impact on India’s Group II import prices due to ample supply from other sources such as northeast Asia and the US, market sources said.

Focus article by Matthew Chong