March base oils output fell to an eight-month low, with weak margins earlier in the year incentivizing refiners to prioritise other products
Total supply lagged demand for a second month, tightening inventories ahead of emerging supply disruptions
Tighter supply left Thailand more exposed to disruptions, with any slowdown in imports from key suppliers adding further pressure
Thailand’s base oils output fell to an eight-month low in March, diverging from a surge in demand that tightened inventories ahead of emerging supply disruptions.
Total Group I base oils output fell to 49,500 kilolitres (44,000 tonnes) in March, down from 54,000 kilolitres in February and by 9% year on year, Ministry of Energy data showed.
The decline followed weaker Asia Group I base oils margins during the first two months of the year that incentivized refiners to prioritise other products.
The dynamic extended to other regional markets such as Japan, where bitumen output unusually remained higher than base oils production throughout the first quarter.
Refiners’ focus on responding to market signals earlier in the year contrasted with a surge in demand in March, reflecting buyers’ faster response to concern about tightening regional supply conditions.
Key Highlights
· Thailand’s surplus Group I base oils supply, or output less domestic demand and exports, remained the second-lowest in six months, after almost disappearing in February.
· Total base oils supply, or output and imports combined, lagged total demand for a second straight month, leaving a shortfall in the first quarter for the first time in a year.
· Asia’s total base oils supply rose to a multi-year high in March as higher output in markets such as India and South Korea offset lower production in Thailand.
Market Repercussions
Thailand entered the second quarter with a tighter supply position, leaving the market more vulnerable to supply disruptions.
Any impact on imports from key regional suppliers such as South Korea and Singapore would compound that pressure, increasing Thailand’s need to cover more of its requirements from domestic production.
Such a move could then impact availability for export markets, curbing flows to outlets such as Singapore and China.
The surge in Asia Group I base oils margins since March boosted the incentive for domestic refiners to raise base oils output.
But refiners also faced competing pressure from stronger transport fuel margins, feedstock constraints and the need to prioritise domestic fuel supply.