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Base oils supply stayed tighter than usual for a second month, with output at a six-month low while asphalt production rose
Domestic consumption rose for a fifth straight month, absorbing more output and cutting exports to a seven-month low
Lower stocks ahead of seasonal demand increased the risk of a sharper squeeze as global disruptions intensified from March
Japan’s base oils supply balance stayed tighter than usual in February for a second month, curbing surplus volumes for export and increasing exposure to market disruptions that followed.
Total supply, or output and imports, slipped to 170,800 kilolitres (151,000 tonnes) in February, edging down from 171,400 kilolitres in January to a six-month low, Ministry of Economy, Trade and Industry data showed.
Lower supply contrasted with a sustained rise in Japan’s domestic consumption that absorbed a growing share of the country’s base oils output.
The tighter supply-demand fundamentals squeezed stocks ahead of a typical seasonal pick-up in demand toward the end of the first quarter.
Supply disruptions in March raised the risk of amplifying the impact of already lower inventories.
Key Highlights
· Base oils and lubricants output fell from January to a six-month low, contrasting with a rise in asphalt production to a 13-month high.
· Base oils output lagged asphalt production for a second month, contrasting with typical output levels that far exceeded asphalt.
· Domestic base oils and lubricants consumption rose 23% year on year, climbing for a fifth straight month and at its fastest pace in nearly two years.
· Base oils exports slid 44% year on year and for a second straight month to a seven-month low, with a slump in shipments to China.
Market Repercussions
Higher asphalt output and lower base oils production in February coincided with increasingly weak base oil margins early this year, encouraging refiners to prioritize other products even before diesel prices surged in March.
The tighter supply fundamentals, combined with strong demand, already triggered a slump in base oils exports in the first two months of the year.
Feedstock shortages and high diesel prices were likely to tighten base oils supply further as refiners prioritize motor fuels.
Demand by contrast typically picks up in March, and any seasonal rise could be stronger than usual following the sustained rebound in consumption in recent months.
Lower stocks could further amplify the impact of tighter supply and rising demand.
