Asia’s June Base Oils Exports Recover As Trade Flows Shift

Asia's base oils exports recovered in June, but Middle East disruptions squeezed the region from both ends, reducing feedstock flows into Asia while pulling more of the shipments toward US and Europe markets short of Group III supply.

Total exports rose to more than 610,000 tonnes in June from less than 585,000 tonnes in May, according to government data from Singapore, South Korea, Indonesia and other markets.

The increase ended two months of year-on-year declines but left exports below the 12-month average of more than 655,000 tonnes.

The recovery was not enough to reverse the broader slowdown. Asia exported about 1.81 million tonnes in the second quarter, down from more than 2 million tonnes in each of the previous two quarters and the lowest quarterly volume since the second quarter of 2020.

Exports slowed partly because reduced Middle East feedstock flows into Asia trimmed output, cutting supply available for export.

At the same time, Group III shortages in the US and Europe, also linked to the loss of Middle East supply, drew a larger share of Asia's reduced export volume toward those markets.

The drop in total shipments, and the rise in flows to the US and Europe, coincided with a sharp drop in Middle East base oils exports to Asia, adding to the squeeze on regional supply.

Key Highlights

·         Exports to Southeast Asia rebounded to more than 210,000 tonnes in June, their highest in five months.

·         Shipments to India stayed below 100,000 tonnes for a second month, well below their average through April.

·         Exports to China also remained below 100,000 tonnes, although the shortfall from average levels was smaller than in India.

·         Shipments to markets outside Asia rose above 215,000 tonnes, with higher South Korean flows to the US and Europe contributing to the increase.

Market Repercussions

Asia entered the third quarter with lower exports than usual, limiting the pressure on producers to find outlets for excess barrels even as demand faced a seasonal slowdown.

Regional prices reflected the tighter supply balance. Group I and Group II prices in Asia stayed unusually firm against crude oil and gasoil in the third quarter, while Group III prices extended their rise.

The price gap with the US and Europe left arbitrage opportunities open, but the smaller Asian export pool cut the surplus available to move. Higher flows outside Asia were also concentrated in Group III, reflecting the sharper shortages of those grades in overseas markets.

That shift created opportunities for suppliers with additional production, including India, whose exports surged in the second quarter.

Even so, Asia’s more limited export flows could tighten further as seasonal demand revives in the region. That could complicate its ability to backfill shortfalls in the Americas, Europe and Africa in the coming months.