India February Base Oils Supply-Balance Tightens, Shrinking Buffer

India’s base oils supply barely exceeded demand in February, leaving blenders with lower-than-usual stocks ahead of the March peak-demand period and a smaller buffer against supply disruptions.

Total supply, or domestic output and imports combined, fell to less than 500,000 tonnes in February, slipping from more than 525,000 tonnes in January to an eighteen-month low, Ministry of Petroleum and Natural Gas and customs data showed.

Total demand, or base oils and lubricants consumption and exports combined, rose to around 495,000 tonnes, up from less than 490,000 tonnes in January and 17% year on year.

Blenders typically built larger stocks early in the year to cover a seasonal surge in demand before financial year-end in March.

The narrower supply-surplus instead left them with lower-than-usual inventories to cover the rise in demand, and a smaller buffer to cushion any subsequent supply disruption.  

Key Highlights

·         February base oils output fell to a three-month low of 134,000 tonnes, though the volume was still the third-highest since early-2023.

·         Rising domestic base oils and lubricants demand offset the boost from higher output, sustaining India’s reliance on imports to cover a large supply shortfall.

·         Base oils imports held at their second-lowest level in eighteen months, limiting further any boost to overall supply from higher output.

·         The cumulative surplus of supply over demand fell to less than 100,000 tonnes in the four months to February, down from more than 530,000 tonnes during the same period a year earlier.

Market Repercussions

India’s reliance on imports for most of its base oils requirements left it more exposed to any drop in shipments from key sources in the Middle East and in Asia.

The supply disruptions linked to the Middle East conflict risked such a slowdown in flows.

Any such drop in overseas supplies increased the strategic value of and need for higher domestic base oils output.

But India’s refiners also faced the challenge of securing sufficient feedstock and prioritising production of key fuels for the domestic market.

Those dynamics could limit or reduce base oils output, mirroring a similar trend in other Asian markets.

Blenders’ already-low stocks left them with little room to offset any such dip in supply from domestic and overseas markets.