Global base oils - week of Jun 6: Supply

· Diesel premiums to crude remain unusually high globally, keeping pace with higher crude.

· Diesel premium to crude stays lower in India/China.

· India retail diesel premium to crude much firmer using notional $35/bl discount for crude price. Diesel premium would be closer to or above its 2021 level.

· Firm diesel prices incentivize refiners to maximise run rates.

· Firm diesel prices should incentivize refiners to focus on diesel production.

· Base oil supply in 2020-2021 also faced pressure from insufficient feedstock supply – because of low refinery run rates.

· Refinery run rates remain high in US, rising in China, slipping in Japan.

· High run rates mean challenge for base oils is securing feedstock supply, not insufficient feedstock supply.

· Strong base oils output in markets like India and Japan suggest any internal price strategies that support higher base oil prices / lower feedstock costs support base oils output.

· Term demand had been strong when term prices linked to gasoil lagged the rise in gasoil. Strong term demand tightened supply.

· Term-price lag vs gasoil has likely narrowed. The higher prices could dampen term demand, increasing surplus supply.

· Asia-Pacific still with surplus supplies to offer to regions where supply is tight, like Europe/Americas.

· Europe may be less attractive destination, with any shipments arriving in Q3, when demand is typically slower.

· End of most plant maintenance in Asia-Pacific likely to free up more supplies.

· Any further rise in Chinese exports would add to regional supplies.

· Taiwan’s May base oil exports rise from April, stay lower than usual.

· Singapore’s base oil exports stay lower than usual over past month.

· Singapore’s base oil exports to India show signs of slowing in recent weeks.

· Singapore’s base oil exports to China stay low in recent weeks.

· Singapore takes delivery of cargo from Bahrain over past week. These have become more frequent in recent months.

· Singapore takes delivery of cargo from Saudi Arabia over past week. These have become increasingly regular over past year.

· Shipment arrivals in Nigeria fell sharply in May. Trend likely to continue.

· Shipments reaching India over next 10 days include supplies from Spore, South Korea, Thailand, UAE, Taiwan.