Taiwan’s August Base Oils Exports Rise To Three-Month High

Taiwan's base oils exports rose to a three-month high in August as wide-open arbitrage drew cargoes to Europe and the US, taking more supply away from Asia to markets where supply remained tighter.

Exports climbed to close to 45,000 tonnes from less than 31,000 tonnes in July and close to 25,000 tonnes in June, Taiwan Customs Administration data showed.

The August volume was close to Taiwan's typical monthly level over the past year. But the destination mix was unusual, with combined exports to the US and Europe rising above 8,000 tonnes, the highest since October 2022.

The shipments tapped an unusually wide open arbitrage over the summer as a slump in Group III supplies from the Middle East left both markets short of premium-grade supply and buyers looking to alternative sources where feasible.

The flows also pointed to Asia increasingly acting as the marginal supplier to tighter overseas markets.

Key Highlights

·         Taiwan had sent cargoes to the US in June, when supply was lower, and to Europe in May, but had not shipped to both simultaneously.

·         The arbitrage shipments added to a jump in South Korea’s exports to the Americas to a record high in July, and a sustained surge in flows from India since June.

·         Shipping data showed steady Taiwan flows to Southeast Asia and India in August, while shipments to China stayed lower, with domestic prices still below Asia cargo prices.

·         Group II heavy grades accounted for more than half of total exports in August, after a sharp drop in July shipments to a 16-month low.

Market Repercussions

Asia was able to tap the open arbitrage more easily during the third quarter, as supply improved from markets like Taiwan and Singapore just as regional demand faced its usual seasonal slowdown.

The additional exports left Asia with a smaller surplus heading into the end of the quarter, limiting the amount of supply available for other markets in the region.

Asia may find it harder to keep supplying the US and Europe with arbitrage cargoes in the fourth quarter, when scheduled plant maintenance in Taiwan and Saudi Arabia is set to tighten supply.

Demand is also picking up seasonally in India and China, adding to that squeeze.

The Americas and Europe both face their own seasonal slowdown by year-end, easing some of the pressure to secure additional shipments. Even so, a drop in Asia export availability would limit its ability to respond should those markets continue to require additional cargoes.