S Korea's August Base Oils Exports To Americas, Europe Surge

South Korea’s base oils exports to Europe and the Americas surged in August as Middle East supply losses left both markets drawing more Group II and Group III barrels from Asia.

Exports to the Americas held above 100,000 tonnes for a second straight month, the second-highest level on record with only July higher, Korea Customs Service data showed.

Shipments to Europe climbed to more than 37,000 tonnes, the highest in 18 months and up year-on-year for a sixth straight month.

Combined, the two regions took almost 140,000 tonnes, the most since April 2014 and the second-highest month on record, with July's already-high 136,300 tonnes the third-highest ever.

The pull came from both regions and both Group II and Group III base oils simultaneously.

Group III premiums in the US and Europe surged over Asia prices after Middle East outages cut regional supply, while Group II premiums also widened as tighter US supply squeezed availability in Europe and the Americas.

Europe and the US have greater exposure to Middle East supply losses, leaving both markets searching for replacement barrels. South Korea is now supplying both markets across Group II and Group III, filling part of the resulting supply gap.

Key Highlights

·         Latin American shipments jumped to a record 30,000 tonnes in August, up from an already-strong 19,700 tonnes in July, led by an unusually large cargo to Venezuela.

·         Shipments to the US eased to 72,200 tonnes from more than 85,000 tonnes in July, but were still up 56% from a year earlier, rising year-on-year for a fourth straight month.

·         Exports to the Netherlands and Belgium, the main outlet for South Korean Group III base oils into Europe, rose to more than 25,000 tonnes, the highest in 14 months.

·         Shipments to the rest of Europe rose to more than 11,500 tonnes, the highest in two years, led by an unusually large cargo to Lithuania.

·         The Americas and Europe together accounted for 39% of South Korea's total exports in August, up from 37% in July and about 20% in the year to March.

Market Repercussions

South Korea's shipments are helping close the Group III supply gap left by the Middle East's disruptions, but the shortfall remains.

Group III plants in Malaysia, Finland and Spain faced a round of maintenance in the third quarter, adding to the supply losses and increasing the need for South Korean cargoes.

The still-steep Group III premium and the widening gap over other grades continued to attract more South Korean barrels into Europe and the Americas. The persistence of that premium, despite the wave of additional supplies, showed that the volumes remained insufficient.

South Korea’s elevated production and the seasonal summer slowdown in Asia allowed refiners to sustain higher shipments to Europe and the Americas.

Any reduction in South Korean output or exports would leave those markets with fewer replacement barrels while Middle East supplies remain disrupted, maintenance removes additional production and US supply stays tight.