· Diesel prices show signs of steadying/rising vs crude after falling sharply in late January.· Diesel premium to crude down from average of more than $40/bl in Mar 2022-Jan 2023. Premium remains much firmer than historical levels.· Firm diesel premium incentivizes refiners to produce more middle distillates.· India’s retail diesel premium to discounted crude prices remains elevated – incentivizing refiners to maximise run rates.· China’s Shandong diesel premium to crude steadies – below Aug-Dec 2022 levels, above Feb-July 2022 levels..· US market likely to see period of relatively tighter supply because of plant maintenance work, more limited arbitrage flows from Asia, seasonal rise in domestic demand, and steady demand from Latin America.· European refiners likely to have limited surplus supply after moving shipments to other markets in first two months of year.· Italy’s December base oils output falls to six-month low amid signs of run-cuts in response to weak demand and falling prices.· Shipments of surplus cargoes from Europe reflect ongoing supply overhang despite run-cuts.· Any continuation of run-cuts likely to have larger impact as demand revives.· Europe’s Group III base oils supply stays balanced-to-tight in early 2023 as slump in shipments from South Korea counters pick-up in supplies from Mideast Gulf.· More Group III shipments from Mideast Gulf likely to move to US in 2023 in response to rising demand and lack of domestic production capacity.· Rising Mideast Gulf shipments to US increase role of Spain in covering Europe’s Group III base oils requirements.· Saudi Arabia’s January base oils exports fall to four-month low.· Most of Saudi Arabia’s January shipments move to markets like east Africa and southeast Asia, rather than to UAE and India, whose prices are under more pressure.· Asia-Pacific base oils supply rebounds in December, far outpacing exports..· Rise in supply highlights large latent production capacity in Asia-Pacific and difficulty of maintaining lower output.· Rise in Asia-Pacific supply precedes surge in base oils exports in January, easing recent supply tightness and curbing producers’ leverage to raise prices.· Structurally long base oils supply curbs blenders’ urgency to build stocks.· Lack of stock-building leaves blenders exposed to short-term pockets of supply tightness.· Singapore’s January base oils exports rise, adding to pick-up in regional supplies from markets like South Korea and Taiwan.· Singapore’s fall in January exports to southeast Asia highlights impact of firmer demand in northeast Asia, including from Japan..· Asia-Pacific producers face challenge of covering expected rise in regional demand, with uncertainty about strength of revival in Chinese consumption. · Asia-Pacific supply already rebounded strongly in December, highlighting ease at which supply can outweigh demand.· Asia-Pacific base oils supply could exceed regional requirements if Chinese demand lags expectations.· Any sign of weaker-than-expected Chinese demand could prompt Asia-Pacific producers to trim output accordingly.· Plant maintenance work in Asia-Pacific set to coincide with seasonal rise in demand in China and southeast Asia.· Limited market price reaction so far suggests supply remains sufficient to meet demand even with the maintenance work.· Arbitrage flows from Asia-Pacific to Latin America likely to remain limited over coming months as China absorbs more supplies.· If China absorbs less supplies than expected, trend would increase availability of arbitrage shipments.· India’s rising base oils production distorts supply trends and trade patterns, reflecting repercussion of availability of low-priced feedstock supplies of Russian origin. Trend likely to persist..· Refiners in other markets with access to discounted crude oil feedstock of Russian origin also enjoy significant competitive advantage for base oils supplies for domestic or overseas markets.· Trend raises prospect of creating growing distortions by generating arbitrage opportunities that didn’t previously exist or closing opportunities that had existed..Global base oils - week of Feb 27: Demand outlook
