· Asia’s base oils supply shows signs of staying balanced-to-tight through Q3 2023, likely to tighten in coming weeks amid plant maintenance, run-cuts, plant closure.
· China’s Shandong diesel prices hold firm versus feedstock prices, contrasting with country's weak base oils values versus diesel.
· Firm diesel and weak base oils values likely to incentivize China’s refiners to extend plant maintenance work/run-cuts.
· Plant maintenance work/closure impacts supply in China, Japan, Taiwan, India over coming weeks.
· Asia-Pacific Group II light-grade prices maintain discount to gasoil prices, incentivizing refiners to cut base oil run-rates.
· India-bound base oils supplies face prospect of slowing as upcoming plant-maintenance in Taiwan cuts supplies from that market.
· Shipments to India face further slowdown amid pause in arbitrage flows from US and as weak light-grade base oils prices incentivize refiners to produce more diesel instead.
· Asia’s July base oils exports already fall to lowest since 1H 2020, with slowdown coinciding with seasonal dip in lube demand.
· Lower exports leave supply-demand fundamentals more balanced, even as regional prices weaken relative to crude and diesel.
· Asia’s lower base oils exports partly reflect refiners’ lower supply, could also reflect signs of refiners facing rising inventories.
· Any such supply-build would keep pressure on refiners to maintain competitive prices and to raise exports.
· China’s August paraffinic base oils output stays low in the face of slack demand and low margins.
· Lack of any significant pick-up in output coincides with domestic blenders’ preference to limit stock-replenishment plans ahead of seasonal pick-up in demand at end-Q3 2023.
· Trend leaves blenders exposed to risk of supply lagging demand in coming weeks.
· Blenders’ preference to maintain lower stocks suggests they expect supply to be sufficient even with a pick-up in demand.
· Those expectations suggest buyers anticipate seasonal pick-up in demand will be muted.
· Those expectations also coincide with signs of pick-up in China’s base oils imports in August that contrasts with steady output volumes.
· Low base oils output and higher imports add to signs that overseas refiners are better able than China’s domestic refiners to manage impact of squeezed margins.
· Japan’s July base oils exports fall to nineteen-month low amid dwindling supply surplus.
· Country’s supply surplus set to narrow further in coming months because of plant maintenance and plant closure.
· Slowdown in July exports include slump in shipments to Singapore and South Korea.
· Those markets will likely need to line up alternative supply sources as availability from Japan tightens over coming months.
· Indonesia’s July Group I base oils exports fall to lowest since 1H 2020 amid firm domestic demand, weak regional prices.
· Prolonged slowdown in Indonesia’s Group I exports curbs prospect of that country covering for likely drop in Group I supplies from Japan.
· Trend raises prospect of rising regional demand for Group I supplies from Thailand.
· Thailand’s July base oils surplus of supply over demand rises to eleven-month high.
· Rising surplus raises prospect of sustained pick-up in base oils exports.
· Indonesia’s July Group III base oils exports fall to four-month low, cutting supply at a time when global Group III prices have weakened steadily versus other grades.
· Almost all the July supplies moved to South Korea – from where a large portion typically moves to the US.
· Shipments contrast with pause in exports to Europe for first time in four months.
· Trend coincides with firmer US Group III prices relative to Europe prices, reviving attraction of shipping more Group III supplies to the US.
· Indonesia’s July imports from Singapore extend surge, contrasting with slide in shipments from South Korea.
· Singapore’s rising flows to Indonesia help counter slower demand in China.
· South Korea’s falling flows to Indonesia increase pressure on country’s refiners to line up alternative outlets as they also face slower demand in China.
