Global base oils - week of Feb 13: Supply outlook

·        Europe/US gasoil prices extend fall relative to crude to lowest in almost a year.

·        Diesel premium to crude remains higher than historical levels. But falling premium boosts attraction of producing other products like base oils.

·        India’s domestic retail diesel premium to crude holds firm, especially so with crude at $30/bl discount – incentivizing refiners to maximise run rates.

·        China’s Shandong province diesel premium to crude falls back, holds at Dec-Jan levels.

·        China’s diesel demand likely to extend recovery as factories resume normal operations after lunar new year holidays.

·        Rising Chinese diesel demand, firmer prices would boost refiners’ incentive to focus on middle distillates production.

·        Focus on diesel production coincides with several base oils plant shutdowns in China.

·        US, Japan, China Shandong province refinery run rates stay high amid still-firm products margins.

·        US weekly distillate stocks rise last week to highest in almost a year, fall year-on-year a slowest pace in almost two years.

·        Slump in US’ December base oils exports highlights smaller-than-usual surplus at end-2022, cuts availability for other regions.

·        Fall in US exports at year-end coincides with and magnifies impact of drop in Asia-Pacific supplies.

·        Fall in US exports comes ahead of extended plant maintenance work in US from 2H January.

·        US’ December base oils exports to Europe fall to lowest since 2013.

·        Fall in US supplies coincides with slowdown then halt in Russian base oils shipments to Europe from early February.

·        Any regional supply tightness will become more apparent when European blenders seek to replenish stocks.

·        Difficulty to hedge incentivizes refiners to keep clearing surplus supplies rather than build stocks.

·        Drop in Russian supplies to Europe likely to cut European surplus for export to markets like Nigeria.

·        Russian supplies previously provided additional supplies to European market during maintenance work/seasonal rise in demand. Now they won’t.

·        South Korea’s December base oils output rises to seven-month high, raising prospect of pick-up in exports in early 2023 to meet seasonal pick-up in demand.

·        Indonesia’s Group I base oils exports stay low throughout 2H 2022, unlikely to rise significantly in Q1 2023 at time of year when regional demand for its supplies typically peaks.

·        Slump in Asia’s Q4 base oils exports to lowest since 1H 2020 contrasts with firmer Q4 shipments in recent years.

·        Those firm shipments had given blenders the opportunity to start replenishing stocks early ahead of peak demand season in Q1-Q2.

·        Fall in Asia’s Q4 exports prevented blenders from building stocks early, squeezing round of stock-building into shorter time period in Q1 2023.

·        Round of stock building will require rise in Asia-Pacific supplies and likely to overlap with round of plant maintenance work.

·        Singapore’s base oils exports to China hold consistently at higher level in recent weeks than throughout most of 2022.

·        Singapore’s base oils exports to Indonesia stay high in first few weeks of 2023, even with rise in shipments to China.

·        Singapore’s base oils imports from Japan rise in early 2023 after falling in last two months of 2022.

·        Singapore continues to take delivery of steady flow of shipments from China in 2023.

·        India’s January base oils exports fall to lowest in more than two years, even with plentiful domestic supply.

·        Taiwan’s January base oils exports show signs of rebounding from December, with swathe of shipments to southeast Asia contrasting with slowdown in cargoes to China.