Saudi Arabia's Red Sea Base Oils Exports Fall In July

Saudi Arabia’s Red Sea base oils exports fell sharply in July, cutting a source that had helped fill gaps left by faltering Asian suppliers.

Combined shipments from Yanbu and Jeddah fell to less than 20,000 tonnes in July, down from more than 60,000 tonnes in June, provisional shipping data showed.

A shipment that went to South Africa in early July moved before Houthi threats to Red Sea shipping intensified. Another cargo moved to Northwest Europe, avoiding the Bab el-Mandeb Strait.

The slowdown came as Saudi Arabia was becoming an increasingly important source of supply to markets affected by disruptions elsewhere. Its exports had risen sharply in the second quarter, as Singapore and Taiwan shipments weakened and South Korean flows to India slowed.

The July slowdown extended into August, with shipments remaining unusually low.

The lower shipments also complicate Saudi base oil refiner Luberef’s ability to capitalise on unusually firm base oils margins that drove a surge in the company's earnings in the second quarter. The company delayed planned maintenance at Yanbu from August to October, while margins remained strong.

Key Highlights

·         India's monthly imports from Saudi Arabia averaged 25,000 tonnes in the second quarter, showing how sharply July's slowdown broke from the recent pattern.

·         Shipments to India from South Korea, Taiwan, Singapore and Saudi Arabia fell below 100,000 tonnes combined in July for just the second time in three years, from average levels of close to 160,000 tonnes in the year to April.

·         The Northwest Europe shipment extended a rise in Saudi flows to the region since March, with Europe’s June imports reaching a record high.

Market Repercussions

Any extended slowdown in Saudi shipments would add to an already broad squeeze on India, coming on top of weakness from Singapore, Taiwan and South Korea.

India has more domestic production to draw on, but it still relies on imports for a large share of its requirements.

Those imports could stay low, or fall further, just as the market's usual seasonal pick-up in demand approaches at the end of the third quarter.

Weak prices relative to other regions could extend that squeeze, leaving India competing for fewer imported barrels just as suppliers favour higher-priced markets and seasonal demand starts to recover.