Global base oils – week of March 13: Supply outlook

·        Diesel prices maintain lower premium vs crude oil over past month; premium remains much higher than pre-Feb 2022 levels.

·        Firm diesel premium vs typical levels continues to incentivize refiners to prioritise middle distillates production.

·        India’s retail diesel premium to discounted crude oil prices remains high – incentivizing refiners to maintain high run-rates.

·        China’s Shandong diesel premium to crude oil holds steady – low vs late-2022 levels, high vs pre-Aug 2022 levels.

·        Plant maintenance work/run-cuts cuts supply in US, Europe, China, southeast Asia.

·        Lower supply coincides with seasonal rise in demand.

·        Supply shows signs of staying sufficient even as fundamentals tighten and Russian supplies struggle for outlets.

·        Expectations of steady availability of supply curb producers’ incentive to hold back availability to lock in higher prices.

·        Such moves previously had exacerbated supply tightness and supported higher prices.

·        US’ January base oils exports rebound, adding to supply and pressure on prices early in the year.

·        Higher US exports raise prospect of more balanced domestic supply.

·        Surge in US exports to Europe in January compound region’s surplus supply, especially of Group II base oils.

·        US exports to Europe show signs of slowing in February.

·        Surge in arbitrage shipments to Argentina in 2H 2022 coincide with slowing demand, triggering supply-build.

·        Argentina’s supply falls in early 2023, clearing surplus.

·        Argentina’s domestic production and flows from US hold steadier even as supply falls, amid drop in arbitrage shipments.

·        Any rise in surplus Asia-Pacific/Mideast Gulf/Europe supplies over coming months would likely target markets like Argentina again.

·        Latin America could also be attractive destination for supplies of Russian origin amid need for Group I base oils, stiff competition in other outlets.

·        Spain’s base oils supply stays lower than usual at end-2022.

·        European buyers’ moves to cut stocks and delay replenishment outweighs signs of lower supply.

·        Surplus Group I supplies from Europe move to Mideast Gulf, Latin America in first two months of the year.

·        Surplus supply from Europe likely to fall over coming months on run-cuts, plant maintenance, dwindling Russian supplies, firmer demand.

·        Indonesia’s Group III base oils exports to Europe stay unusually low in January, compounding slowdown from South Korea and keeping European supply tight early this year.

·        Indonesia’s Group III base oils exports to Europe show signs of reviving in February, adding to signs of easing supply-tightness in Europe.

·        Asia-Pacific January base oils exports rise to four-month high; February exports show signs of staying firm.

·        Asia’s surplus supply likely to be lower this year than last year, even if Chinese demand lags expectations, because of heavier round of plant maintenance work.

·        South Korea’s January base oils output stays low, while diesel output rises.

·        Price dynamic that incentivizes such moves changes in February and March - trend could incentivize rise in output.

·        Uncertainty about strength of China’s pick-up in demand add to refiners’ incentive to cut base oils output and focus on middle distillates.

·        Taiwan’s February base oils exports fall, but shipments to China rise – curbing flows to other regions.

·        Thailand’s base oils exports likely to fall from four-month high in January on seasonal pick-up in domestic demand.

·        Japan’s base oils exports to Singapore show signs of slowing in February.

·        Japan’s base oils shipments to Thailand already fall in recent months.

·        Trend likely to continue and force buyers to line up alternative supplies instead.

·        Singapore’s four-week average base oils exports rise last week to more than 200,000t for first time in more than a year.