Asia base oils - week of Nov 13: Supply outlook

·        Asia’s base oils supply shows signs of staying balanced through Q4 2023 amid plant maintenance, steady regional demand.

·        China’s Shandong diesel prices improve vs crude oil, stay low vs domestic base oils prices.

·        Trend incentivizes domestic refiners to raise output.

·        Asia’s firm prices compared with China’s domestic prices continue to incentivize China’s domestic refiners that can move shipments into the export market to do so.

·        Group II base oils shipments from Taiwan expected to resume in Dec 2023 following completion of plant maintenance work.

·        Its most recent plant maintenance work lasted longer than expected because of a production glitch during plant restart.

·        South Korea’s September base oils output edges down from Aug 2023 levels.

·        Small dip in output mirrors most other key producers in Asia-Pacific region, curbing supply-build in the region.

·        Combined together, Asia’s September base oils output falls more than 60,000t from Aug 2023.

·        Lower output contrasts with signs of strong revival in demand in several key markets in Asia-Pacific.

·        Trend points to relatively balanced supply-demand fundamentals heading into Q4 2023.

·        Trend contrasts with large overhang of surplus supplies in Q3 2022 and subsequent surge in arbitrage shipments to distant markets like Africa and Latin America.

·        Asia’s lower base oils supply mirrors slide in region’s base oils exports in Sept 2023.

·        Exports usually rise in month of September from August as refiners clear surplus supplies that build up during Q3.

·        Asia’s base oils exports fall by more than 270,000t in Q3 2023 from year-earlier levels.

·        Lower exports reflect balanced-to-tighter supply-demand dynamics in Q3 2023.

·        Lower exports cut supply for buyers in Asia and in more distant markets like Africa and Latin America.

·        Lower exports leave regional and global market with tighter supply in Q4 2023.

·        Tighter supply fundamentals in Asia raise prospect of supporting firmer base oils prices relative to feedstock/competing fuel prices and relative to other regions.

·        Thailand’s base oils supply lags demand in Sept 2023 for second month.

·        Thailand’s supply shortfall of more than 7,500kl in Q3 2023 contrasts with surplus of more than 43,000kl in Q3 2022.

·        Shortfall curbs Thailand’s need to clear surplus supplies in Q4 2023.

·        Supply shortfall comes just weeks ahead of closure of Group I plant in Japan.

·        Shortfall curbs Thailand’s ability to cover any additional demand in region in the short-term following closure of plant in Japan.

·        Asia Group I base oils prices remain relatively weak at end Q3/early Q4 2023 despite tighter Group I supply.

·        Price weakness deters suppliers like Thailand from raising output.

·        Indonesia’s Group III base oils exports fall in Q3 2023 from previous year for seventh straight quarter.

·        Sustained slowdown in Group III exports likely reflects combination of lower base oils output and rising domestic demand.

·        Exports in Q3 2023 still rise to highest in a year, pointing to rise in output compared with late last year and early this year.

·        Group III exports rise in Q3 2023, but with no shipments to China.

·        Dearth of shipments to China coincides with rise in China’s domestic Group III base oils output.

·        Trend leaves more Group III supplies targeting the other major markets of Europe and US.

·        Slowdown in very-light grade base oils shipments from Spain to India in Oct 2023 coincides with drop in arrival of arbitrage flows from US to India in recent months, including Oct 2023.

·        Drop in shipments from key sources follows fall in India’s imports of very-light-grade base oils in Sep 2023.

·        Trend increases India’s need to replenish stocks and its reliance on South Korea and Mideast Gulf especially.

·        Signs of pick-up in availability of very-light grade base oils from US would provide welcome additional source of supplies for Indian buyers.

·        Any such rise in supplies from US would likely have more impact in early-2024, rather than during remaining weeks of this year.

·        Singapore’s four-week base oils imports fall to lowest in more than three months.

·        Four-week imports from Japan fall to lowest since Jan 2022.

·        Slowdown in shipments from Japan likely to continue following closure of Group I plant in the country in Oct 2023.

·        Drop in supplies from Japan increases need for alternative supplies to cover shortfall.

·        Rise in shipments from Italy to Singapore show signs of continuing over coming weeks, covering some of the shortfall.