· Global base oil prices could face pressure this year from a combination of rising supply and a shrinking number of outlets that are able to absorb the supplies, ICIS data shows.· The expected rise in supply is likely to have a large impact on existing trade flows.· A wave of new premium-grade production capacity is set to start up in India this and next year.· India’s base oils imports remain the highest in Asia even as they dip from record-high levels in 2021.· High imports reflect India’s insufficient existing base oils production to meet domestic demand..· New base oils production in India will help to cover larger share of country’s domestic demand.· Rise in domestic supply raises prospect of cutting requirements for base oils imports, including very-light grades and Group III supplies.· India’s role as a key outlet for surplus base oils grew in 2023 after Mexico tightened rules on base oils imports into the country in Q4 2023.· Mexico had previously been a valuable outlet for surplus supplies from the US, especially of very-light grade base oils.· US exports to Mexico fell sharply in Oct-Nov 2023 following the implementation of the tighter regulations..· Other markets that also absorbed additional supplies also face or have already seen a slowdown in requirements.· Brazil absorbed more base oils from overseas markets in 2H 2023 as strong domestic demand coincided with extended plant maintenance work..· Prospect of rise in domestic supply following completion of plant maintenance likely to curb Brazil’s demand for overseas supplies this year, especially vs 2H 2023..· In Asia, China’s demand for overseas supplies has fallen steadily in recent years because of rising domestic production and slower demand.· Shrinking demand in markets like China and Mexico boosted the importance of India as a key outlet for surplus supplies.· The prospect of a slowdown in India’s demand for overseas supplies would compound the difficulty for global refiners to clear surplus volumes.· The shrinking number of outlets for supplies increases the importance of remaining outlets such as Mideast Gulf.· Asia’s base oils exports to Mideast Gulf rose by more than 70pc in the first eleven months of 2023 vs year-earlier levels..· That market’s role as an outlet for surplus supplies from Asia and US could also shrink if India’s refiners take advantage of their logistical proximity to the Mideast Gulf to clear any surplus supplies that they have.· The changing supply-demand dynamics raise the prospect of impacting arbitrage flows from Asia, the Mideast Gulf and the US and of further complicating global refiners’ ability to clear surplus volumes..Global base oils - week of Jan 15: Price outlook - margins
· Global base oil prices could face pressure this year from a combination of rising supply and a shrinking number of outlets that are able to absorb the supplies, ICIS data shows.· The expected rise in supply is likely to have a large impact on existing trade flows.· A wave of new premium-grade production capacity is set to start up in India this and next year.· India’s base oils imports remain the highest in Asia even as they dip from record-high levels in 2021.· High imports reflect India’s insufficient existing base oils production to meet domestic demand..· New base oils production in India will help to cover larger share of country’s domestic demand.· Rise in domestic supply raises prospect of cutting requirements for base oils imports, including very-light grades and Group III supplies.· India’s role as a key outlet for surplus base oils grew in 2023 after Mexico tightened rules on base oils imports into the country in Q4 2023.· Mexico had previously been a valuable outlet for surplus supplies from the US, especially of very-light grade base oils.· US exports to Mexico fell sharply in Oct-Nov 2023 following the implementation of the tighter regulations..· Other markets that also absorbed additional supplies also face or have already seen a slowdown in requirements.· Brazil absorbed more base oils from overseas markets in 2H 2023 as strong domestic demand coincided with extended plant maintenance work..· Prospect of rise in domestic supply following completion of plant maintenance likely to curb Brazil’s demand for overseas supplies this year, especially vs 2H 2023..· In Asia, China’s demand for overseas supplies has fallen steadily in recent years because of rising domestic production and slower demand.· Shrinking demand in markets like China and Mexico boosted the importance of India as a key outlet for surplus supplies.· The prospect of a slowdown in India’s demand for overseas supplies would compound the difficulty for global refiners to clear surplus volumes.· The shrinking number of outlets for supplies increases the importance of remaining outlets such as Mideast Gulf.· Asia’s base oils exports to Mideast Gulf rose by more than 70pc in the first eleven months of 2023 vs year-earlier levels..· That market’s role as an outlet for surplus supplies from Asia and US could also shrink if India’s refiners take advantage of their logistical proximity to the Mideast Gulf to clear any surplus supplies that they have.· The changing supply-demand dynamics raise the prospect of impacting arbitrage flows from Asia, the Mideast Gulf and the US and of further complicating global refiners’ ability to clear surplus volumes..Global base oils - week of Jan 15: Price outlook - margins