S Korea’s August Base Oils Output Edges Down, Fuel Output Rises

South Korea’s base oils output edged down in August as refiners increased fuel production, leaving the market closely balanced as seasonal demand begins to recover.

Base oils output fell to 2.77 million barrels (391,000 tonnes), from 2.85 million barrels in July, the lowest in four months, Petronet data showed.

The decline was modest, with August output still above the average monthly volume of 2.75 million barrels over the past year.

South Korea's elevated output has allowed it to supply a large share of the Group II and Group III supply gap left by Middle East disruptions, with record volumes moving to Europe and the Americas even as Asia's own surplus has narrowed.

While South Korean refiners maintained high base oils production in August, a larger share of refinery output moved into fuels as diesel economics strengthened.

That left less room for base oils output to increase and kept the domestic supply balance tighter than usual heading into the final weeks of the third quarter.

Key Highlights

·         The four months to August recorded South Korea's highest base oils output since May 2022, despite the August decline.

·         Base oils accounted for 2.5% of refinery output, down from 2.7% in July and 3.2% in June, the lowest since February.

·         Diesel and jet fuel accounted for 42.1% of refinery output, up from typical levels of less than 40% over the past year and the highest in more than six years.

·         Total base oils supply fell slightly below demand in August, after remaining closely balanced during the previous two months.

Market Repercussions

South Korea's base oils supply closely matched demand for a third straight month, curbing the surplus build that typically appears in the third quarter and leaving less pressure on prices to clear excess stock.

Unusually strong diesel economics instead increased pressure on grades whose margins have weakened relative to fuels.

Group III margins remained wide enough to support high production, while Group II margins eased during the third quarter, making that grade more exposed to a shift in refinery production.

Any such adjustment would come at a time when Asia's own demand is due for its seasonal pickup and just as Taiwan and Saudi Arabia head into fourth-quarter plant maintenance.

South Korea has already been shipping more barrels to Europe and the Americas as well as meeting regional demand. A further decline in output would leave less supply available for additional exports, increasing the need for other producers to fill any resulting gaps.