Global base oils - week of March 27: Supply outlook

·        Diesel price premium to crude holds relatively steady since early February, even after recent crude-price slump.

·        Diesel premium remains lower than in 2022, higher than usual, incentivizing refiners to maintain high output.

·        India’s retail diesel premium to discounted crude oil prices holds close to highest in a year, incentivizing refiners to maximise production.

·        China’s Shandong diesel premium to crude edges down, holds close to three-month high.

·        Plant maintenance shutdowns set to impact supply-demand dynamics in different markets at different times over coming months.

·        Completion of US plant maintenance precedes maintenance work in Europe and Asia over coming months.

·        Likely rise in US supply following completion of plant maintenance would typically coincide with seasonal rise in demand. Prospect of weaker-than-usual demand set to disrupt that pattern, complicate refiners’ supply plans.

·        Expected restart of base oils unit in US following maintenance adds to need to have access to overseas outlets to clear surplus supplies.

·        Signs of US cargoes being lined up to move to India would be first arbitrage flows to that market in several months.

·        Arbitrage flows from US to India had been lower than usual in late-2022/early 2023.

·        China and India’s access to low-priced feedstock supplies of Russian origin complicates diversion of Russian base oils to other markets in place of Europe. 

·        Europe’s Group III base oils supply shows signs of rising in March on pick-up in flows from Mideast Gulf, Asia-Pacific, after slowdown in February.

·        Rebound in South Korea Group III shipments to Europe in February adds to signs of improving availability in the region.

·        Italy’s January base oils output surges despite weak regional demand, adding to surplus supply and pressure on prices.

·        Rise in Italy’s base oils output helps to cover for and cushion impact of EU ban on supplies of Russian origin from February.

·        Volatility of Italy’s base oils output raises prospect of more frequent periods of oversupply and shortage in European market.   

·        Europe’s January imports from Russia rise to five-month high. Supply set to last longer because of weak demand.

·        Repercussion of Europe’s loss of Russian supplies likely to be felt more when blenders replenish stocks.

·        Wave of Group II arbitrage cargoes from South Korea/Taiwan to Europe/Nigeria in February likely to slow down in coming months as lower European prices make shipments less feasible.

·        Rising base oils exports from China and India add to supply in the Asia-Pacific/Mideast Gulf market.

·        Rising exports originate from markets that are also Asia’s largest importers.

·        Trend highlights structural change as China/India domestic supply rises.

·        Rise in Asia’s base oils imports from Qatar at start of year adds to regional supply, increases importance of strong Chinese recovery.

·        Singapore’s February base oils exports to China rise to 11-month high; March exports likely rise much higher.

·        Rising shipments point to pick-up in pace of China’s base oils demand.

·        China’s rising base oils demand likely to support firm requirements for regional supplies unless and until domestic output rises.

·        China’s domestic refiners’ access to low-cost feedstock supplies of Russian origin would give them similar benefit to Indian refiners.

·        India’s domestic base oils supply rose strongly in 2H 2022 as refiners took advantage of unusually high margins with low-priced feedstock of Russian origin.

·        China’s domestic base oils production capacity is much larger than India’s capacity.

·        India’s imports of very-light grade base oils fall in February, raise prospect of leaving blenders with tight supplies of the product.

·        India’s volume of Group II base oils imports from Asia-Pacific increasingly dependent on strength of China’s demand recovery over coming months.

·        Rising demand in Mideast Gulf in Q1 2023 attracts arbitrage supplies from various markets that would otherwise have moved to India. 

·        Sharp fall in Singapore’s weekly base oils exports from domestic sources last week suggests scheduled plant maintenance may have begun.

·        Singapore’s surge in exports in recent weeks could reflect moves to build stocks in overseas markets ahead of plant maintenance work.

·        Singapore’s base oils imports from Japan over past four weeks hold close to lowest in a year ahead of scheduled plant maintenance in the northeast Asian country.