Global base oils – week of March 20: Supply outlook

·        Diesel prices hold firm vs crude oil at elevated levels vs pre-Feb 2022 levels.

·        Slump in outright crude and diesel prices and so-far steady-to-higher base oils prices could prompt refiners to produce more base oils – despite still-muted demand in US and Europe.

·        India’s retail diesel premium to crude oil surges. Retail diesel price was last changed in May 2022, when crude prices were above $110/bl.

·        China’s Shandong diesel premium to crude oil rises close to highest in more than three months.

·        US base oils plant maintenance caps supply in recent weeks; supply set to rise as maintenance draws to a close in coming weeks.

·        Rising US base oils exports to Latin America in January help to clear supply-build at end-2022.

·        US exports will need to stay high if seasonal pick-up in domestic demand fails to kick in soon.  

·        Americas’ base oils supply rises to five-month high in December – highlighting speed of supply-build in response to weak demand.

·        Americas’ 2022 supply barely exceeds levels in 2020, highlighting size of fall in output last year.

·        Extension of slowdown in supply in 2023 would facilitate arbitrage opportunities to Americas from regions like Europe, Russia, Mideast Gulf and Asia.

·        Rise in US supply in 2023 would complicate those arbitrage opportunities, add to competition for markets like Nigeria and India.

·        Europe’s base oils supply falls in December at faster pace than regional lube demand for eleventh time in twelfth month.

·        Europe’s Group I supply could tighten faster than expected when demand revives amid signs base oils demand has been weaker than lube demand.

·        Europe’s base oils imports from Russia show signs of extending into start of this year – suggesting stock-building ahead of EU ban on Russian shipments from start of February.

·        Any stock-building would delay for longer the supply impact of the ban.

·        Europe’s Group III base oils supplies from Mideast Gulf slump at start of the year, far outpacing seasonally weaker demand.

·        Europe’s Group III supply from Mideast Gulf and other markets show signs of improving since then.

·        Asia-Pacific base oils exports typically fall in February from January as firmer demand curbs refiners’ urgency to clear surplus supplies.

·        Asia-Pacific base oils exports show signs of rising in February from January as refiners raise output.

·        Strength of Chinese demand set to be key factor determining region’s ability to absorb rising exports.

·        Asia-Pacific base oils supply rises to nine-month high in January, likely to ease in following months as maintenance work cuts output.

·        Taiwan’s base oils exports to India pause in February, rise in March.

·        Trend highlights more intermittent flows from Taiwan to India as more supplies move to China. Pattern likely to continue.

·        South Korea’s February base oils exports rise to three-year high as shipments to China surge.

·        Rise in shipments points to firmer Chinese demand.

·        Rise in shipments and firmer Chinese demand likely also reflects low domestic base oils production in China.

·        A recovery in China’s domestic production would cut demand for regional supplies.

·        South Korea’s rise in shipments to southeast Asia points to sufficient supply even with revival in Chinese demand.

·        South Korea's shipment of large volumes to growing number of outlets in southeast Asia provides valuable hedge against demand weakness in any one of those outlets.

·        Fall in South Korea’s base oils exports to India suggest refiners have leverage to target markets with higher prices.

·        Open arbitrage facilitates shipment of large volume of Asia-Pacific Group II base oils to Europe in February.

·        Supplies from Asia add to Europe’s Group II base oils supply surplus.

·        Arbitrage flows from Asia to Europe likely to slow or halt in March as lower Europe prices curb attraction of arb shipments.

·        More limited arbitrage opportunities for Asia producers add to importance of firm regional demand to absorb supplies.

·        Singapore’s base oils exports stay unusually high last week for a second week amid wave of shipments to China and India.

·        Singapore’s four-week average base oils exports rise last week to highest in more than a year on sustained surge in shipments.

·        Singapore’s four-week average shipments to China rise to highest since before 2020.

·        Singapore’s four-week average base oil exports to SE Asia rise to three-month high.

·        Singapore’s simultaneous rise in exports to China, SE Asia and India suggest rise in production.

·        Singapore takes delivery of more than 9,000t of base oils from China in past three weeks – vs typical monthly volumes of less than 5,700t over past six months.

·        China’s shipments to Singapore rise even as domestic demand rises.