Global base oils - week of Jan 23: Supply outlook

·        Diesel premium to crude rises to highest in almost three months.

·        Rising diesel premium to crude magnifies impact of higher crude oil prices, incentivizes refiners to focus on middle distillates production.

·        Imminent halt to Russian diesel shipments to Europe in early February set to tighten regional supply, boost demand for shipments from more distant markets.

·        India’s retail diesel premium to crude edges down, stays high vs crude at $30/bl discount.

·        China’s Shandong diesel premium to crude steadies through January after slumping in December.

·        US refinery run rates extend recovery last week, reflecting short-lived impact of winter storms at end-2022.

·        US distillates stocks fall last week to seven-week low, fall for 91^st week from year-earlier levels.

·        Global base oils supply falls to twenty-month low in October amid maintenance work and run cuts.

·        Lower supply cushions impact of seasonal slowdown in demand in fourth quarter, curbs build-up of surplus volume at start of new year.

·        Dip in global shipments from Qatar in October and November coincides with Group III plant maintenance work in Mideast Gulf and Europe.

·        Supplies of premium-grade base oils from Mideast Gulf to Europe show signs of recovering in late 2022 and early 2023, easing recent tightness.

·        South Korea’s Group III base oils exports to Europe rise in late 2022, adding to improvement in supplies at start of this year.

·        Asia’s November base oils supply holds at second-lowest level in 17 months, curbing availability of arbitrage shipments well into start of 2023.

·        Drop in Asia-Pacific supplies shows signs of extending into December among growing number of producers.

·        South Korea’s low base oils exports in December and Q4 2022 add to tighter supply in early 2023, ahead of seasonal pick-up in demand.

·        South Korea’s December base oils exports fall to southeast Asia, rise to China. Trend highlights widespread repercussions of revival in Chinese demand and impact on trade flows.

·        South Korean refiners can meet strong demand from China and from southeast Asia by raising production.

·        Weak Asia base oils margins in early 2023 incentivize South Korean producers to maintain lower production.

·        Singapore’s December base oils exports stay low, cutting Q4 2022 shipments to lowest in more than two years.

·        Continuation of lower production in early 2023 would compound likely supply-demand imbalance in a few weeks’ time.

·        Continuation of lower production would coincide with upcoming plant maintenance work in Asia-Pacific region.

·        Slowdown in arbitrage shipments from Asia to Latin America in late-2022 facilitates flow of US shipments to the region.

·      Slowdown in arbitrage shipments to extend into this year, leaving Latin America buyers more reliant on supplies from other regions, especially US.

·        US base oils exports to Latin America relatively steady at low level during Q4 2022, limiting size of supply-build in that region heading into start of this year.

·        More balanced supply in Latin America likely to support steadier demand in early 2023.  

·        Flow of additional arbitrage shipments from US to Nigeria unlikely anytime soon, leaving country reliant on supplies from Europe, Russia and Mideast Gulf.

·        Halt to Russian base oils shipments to Europe from early February likely to cut Europe’s surplus supply for other markets.

·        Closure of European market to Russian base oils shipments likely to prompt sellers to eye more distant and logistically more complicated outlets like Mideast Gulf, India and Latin America.