Global base oils - week of Feb 20: Supply outlook

·        Gasoil premium to crude holds close to weakest in a year.

·        Weaker diesel premium vs crude incentivizes refiners to produce other products.

·        India’s retail diesel premium to crude edges down; diesel premium to crude at $30/bl discount stays high – incentivizing refiners to maximise output.

·        China’s Shandong province diesel premium to crude steadies, above 1H 2022 levels, below 2H 2022 levels.

·        Refinery run rates in US, Japan, China’s Shandong province hold firm.

·        Base oils supply typically starts to tighten around this time of year as plant maintenance cuts supply while demand revives.

·        Lower global base oils supply at end-2022 already limited volume of surplus supplies at start of 2023.

·        Blenders’ cautious stock-replenishment plans raise prospect of more limited supply-tightness, curbing upward price pressure.  

·        Tighter-than-expected supply by contrast would likely trigger a stronger rise in demand and sharper rise in prices.

·        Demand would then slow more sharply later in year as blenders work down high-priced stocks.

·        Lower demand later in year would put more pressure on prices, cutting value of blenders’ stocks and adding to reluctance to buy – repeating frequent trend of price pressure in second half of year.  

·        Producers face challenge of supplying sufficient volumes that avoids sharp price reaction and that reflects buyers’ caution.  

·        Maintenance work affects Group I and Group II plants in US in Q1 2023.

·        Maintenance work affects base oils plants in China, Indonesia, Singapore, India in Q1 2023.

·        EU ban on Russian base oils imports from early February cuts surplus supply at time of year when plant maintenance work typically takes place.

·        US’ 2022 base oils imports rise to highest in more than eight years as strong demand, high prices attract more Group III and arbitrage supplies.

·        Rebound in US Group III base oils imports in December likely extends into early 2023.

·        Tighter supply, firm demand fundamentals in Americas at end-2022 likely to sustain firmer base oils demand within region, cut volume of surplus supply for other markets.

·        Fall in US shipments to South Africa in 2022 highlights competition for outlets as African country takes more supplies from Europe and Mideast Gulf.

·        Slump in Europe’s base oils imports from Russia at end-2022 suggest buyers already prepared alternative supplies ahead of EU ban on Russian imports from early February.

·        EU ban comes at a time of healthy regional availability of Group I base oils.

·        Any unexpected drop in Group I supply in Europe would reflect more accurately the impact of the loss of supplies from Russia. 

·        Flow of supplies to Nigeria rebounded in December and January as wave of shipments arrived from US, Europe and Baltic market.

·        Flow of shipments to Nigeria could face squeeze in coming months on tighter surplus supply in Europe/US and more complicated logistics from Baltic region.

·        Closure of European market to Russian base oils drives supplies to other markets.

·        Price offers for Russian supplies would need to be unusually competitive to attract buying interest in outlets like Mideast Gulf and India.

·        There are signs of some offers of supplies at unusually competitive prices in those markets.

·        Any successful shipment of Russian base oils to Mideast Gulf/India would displace existing supplies to those markets, extending the ongoing change in trade flows.

·        South Korea’s January base oils exports rise to four-month high as production rises. Shipments to China fall amid delayed revival in demand during lunar new year holidays.

·        South Korea’s January exports to southeast Asia and India surge, replenishing blenders’ stocks ahead of seasonal rise in demand.

·        Taiwan’s base oils exports to China show signs of rising in February after dipping in January.

·        Drop in Taiwan shipments to other regions in February would contrast with rebound in flows to markets like India and even to US in January.

·        Shipments from Japan to Singapore show signs of rising strongly over past month.