Global base oils - week of Jan 30: Supply outlook

·        Diesel premium to crude slips from two-month high in mid-January, stays elevated.

·        Diesel premium holds strong ahead of EU’s ban on oil products imports from Russia, including diesel, VGO and base oils, from 5 February.

·        Strong diesel premium and prospect of tighter diesel supply incentivizes refiners to boost middle distillates production, especially in Europe.

·        India’s domestic retail diesel premium to crude oil holds close to nine-month high; diesel premium versus crude at $30/bl discount holds close to highest in 18 months versus crude with no discount.

·        Strong diesel premium incentivizes India’s refiners to operate at high run rates – December oil products output rises to nine-month high.

·        China’s Shandong diesel premium to crude rises to highest in more than a month.

·        Major US refinery scheduled to start extended plant maintenance work from late-January.

·        US plant maintenance work, firm diesel premium to crude, and more limited surplus in US at start of 2023 likely to curb availability of additional surplus supplies.

·        Slump in Italy and Spain’s base oils output in November helps to limit size of supply-surplus at end-2022.

·        Italy and Spain’s lower base oils output coincides with rising gasoil run-rates, highlighting repercussion of firm diesel crack and weak base oils prices.

·        Surge in Netherlands shipments to southeast Asia at end-2022 likely clears large volume of surplus supplies in Europe.

·        UK’s higher November base oils output targets buyers in overseas markets like Africa amid signs of firmer demand in those markets, leaving less supply for Europe market.

·        Slowdown in arbitrage flows from Asia in Q4 2022 and lower European prices boost attraction of European supplies for buyers in markets like North Africa.

·        Slump in Europe’s premium-grade base oils exports to Russia frees up more supplies for markets like Europe and US, whose Group III demand continues to rise strongly.

·        Maintenance work set to affect several plants in Asia in Q1 2023.

·        Maintenance work in Asia-Pacific to cut supply that already fell in final months of 2022.

·        Lower supply set to coincide with seasonal rise in demand and economic recovery in China.

·        Singapore’s rising share of exports to China this and last month cut availability of supply for other markets.

·        Changing trade flows highlight repercussion of reviving Chinese demand, likely to boost competition for regional supplies.

·        Base oils exports to southeast Asia from South Korea, Taiwan and Singapore combined fall in December to lowest since January 2022.

·        Drop in Asia-Pacific shipments to southeast Asia could leave supply tight unless demand falls sharply or production rises.

·        Thailand and Singapore see fall in December base oils imports because of drop in supplies from South Korea and Japan.

·        Slowdown highlights impact of lower production, curbing volume of surplus supplies at start of this year.

·        Slowdown in shipments from Japan to Singapore contrasts with surge in supplies from Japan to Singapore throughout most of 2022.

·        Slowdown likely to continue through this year following plant closure in Japan in 2H 2022, heavier round of plant maintenance this year, and closure of another plant later this year.

·        Rise in China’s base oils exports in December and drop in imports cuts country’s supply ahead of likely rebound in demand after lunar new year holidays.

·        Singapore’s high imports from China in January point to ongoing shipments from the northeast Asian country.

·        Move suggests Chinese refiners may enjoy an unusual incentive, such as low feedstock costs, to continue with such shipments.

·        Move suggests recovery in Chinese demand relatively muted in January, narrowing window to replenish stocks before pick-up in demand.