Asia’s Premium-Grade Imports From Middle East Slump In August

Asia's premium-grade base oils imports from the Middle East slumped in August, leaving the region to replace lost supply just as more Asian barrels move to the US and Europe.

Imports fell to less than 1,000 tonnes from close to 15,000 tonnes in July and typical monthly volumes of more than 64,000 tonnes in the year to May, Enterprise Singapore and other government data showed.

July's pick-up proved a one-off. It came almost entirely from Singapore, which took delivery of cargoes from Qatar and the UAE after a brief rise in flows out of the region in June. There was no repeat in August.

Flows are instead back near June's level, when imports slumped to less than 1,500 tonnes as the full pause in Middle East shipments took effect. Occasional cargoes may still get through, but the baseline is little or no Middle East supply.

Asia has more scope than the US or Europe to absorb that loss, given its own Group III capacity. But more of that supply is now moving outside the region.

South Korea is sending an unusually large share of its supply to the US and Europe, leaving less within Asia. Maintenance is also curbing flows from Malaysia, and Indonesia's exports have slowed sharply since May.

China and India are providing some replacement supply. China raised its Group III output to a 17-month high in August, keeping its own supply steady, while India shipped more Group III cargoes, including one to Southeast Asia.

Key Highlights

·         Hong Kong's imports from Qatar held at zero for a third straight month, the longest pause since the first half of 2017.

·         Singapore’s imports from the Middle East fell to less than 600 tonnes, from more than 14,000 tonnes in July.

·         China's Group III imports from the Middle East fell to less than 500 tonnes, from typical monthly volumes of more than 21,000 tonnes in the year to April.

·         Indonesia's premium-grade base oils exports fell to less than 25,000 tonnes in the three months to July, from more than 62,000 tonnes in the three months to April.

·         Asia's Group III prices remained at a steep discount to US and European prices, although the gap was narrower than at the start of the second quarter.

Market Repercussions

The halt in flows removes more than 60,000 tonnes a month of premium-grade supply from Asia, leaving other regional producers to cover a larger share of demand.

The loss of that volume, combined with higher shipments from Asia to other markets, held down the region’s supply build over the summer. It also gave refiners in China and India more reason to maximise Group III output and direct more cargoes to overseas markets, including elsewhere in Asia.

Asia's steady price discount to the US and Europe in recent months has limited how much of that supply stays in the region, as the open arbitrage continues to draw cargoes toward higher-priced markets.

The longer the pause lasts, the more established alternative supply routes become. Buyers have already diversified their sourcing as Middle East shipments fell and alternative Asian flows increased. Middle East suppliers may find it harder to regain their previous share of the regional market when shipments resume.