Mineral Oil Market Revived Slowly

Mineral Oil Market Revived Slowly

Last week, the international crude oil prices first slumped and then kept fluctuating within a wide range. The aggravation of Sino-U.S. trading tensions made many participants adopt bearish attitudes toward the global economic development, and the hurricane in the U.S. affected the demand for crude oil. As a consequence, the international crude oil prices experienced consecutive slumps. However, Russia announced that it will strictly reduce its crude oil output later, and with the aggravation of the U.S.-Iran tensions, the international crude oil prices surged. Up to September 6, the WTI price closed at $56.3/bbl, down 0.72% W-O-W, while the Brent price closed at $60.95/bbl, down 0.21% W-O-W.

In China, though the prices of mineral oil used to follow the price trend of international crude oil, the current major factors that influence the prices of mineral oil are the supply and demand fundamentals, and there is a lag between the change of international crude oil prices and its influence on China’s mineral oil prices.

Due to the significant fluctuation of international crude oil prices, most participants adopted wait-to-see attitudes toward the mineral oil market, and most refineries maintained their prices stable. The prices of mineral oil with low viscosity were supported by relatively short supply, while the sales of mineral oil with medium and high viscosity underperformed. Therefore, some refineries cut their profits to promote the sales of mineral oil with medium and high viscosity. However, though most refineries tried to reduce their output of mineral oil with medium and high viscosity, the weak sales still made the inventory pressure at refineries kept growing. SCI reckons that the increase of gasoline and diesel prices was the main reason pushing the prices of mineral oil with low viscosity. China’s National Development and Reform Commission raised the retail ceiling prices of gasoline and diesel on September 4, and accordingly, some refineries raised their prices of mineral oil with low viscosity by around RMB 100-250/mt.

Though the mineral oil market entered its peak season from September to October, the current end demand for mineral oil stays sluggish. The prices of mineral oil with low viscosity are supported by the relatively short supply, while the demand for mineral oil with medium and high viscosity underperforms. According to the statistics of the past years, the end demand for mineral oil used to reach its peak between the Mid-Autumn Festival and the National Day. However, currently, the inventory at downstream textile mills is at relatively high level, while the profits stay at low levels. Therefore, some textile mills may shut down their units for the holiday, and the overall textile industry is likely to underperform.

Currently, the international crude oil prices fluctuate within a wide range, and there are many uncertain factors in the market, giving limited support to China’s mineral oil market. Therefore, most downstream users stay on the sideline and purchase on a need-to basis, and the revival of the end demand for mineral oil is slow. SCI reckons that the mineral oil market in China will stay tepid for a short period.




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