Asia base oils - week of Jan 15: Supply outlook

·        Asia’s base oils supply likely to be mixed, with Group I availability staying tight, Group III surplus moving to more distant markets, and pressure on Group II margins.

·        Asia’s Group I base oils supply likely to stay tight amid plant maintenance work in southeast Asia.

·        Asia’s Group III base oils supply could start to tighten following surge of arbitrage shipments in Dec 2023.

·        Round of regional Group III plant maintenance in Q1 2024 then starts in January.

·        Asia’s Group II base oils supply gets boost from signs of strong pick-up in flows from Taiwan.

·        Most of Taiwan’s January shipments move to China, curbing more regionwide impact of pick-up in its supply.

·        Asia’s surplus of base oils supply over demand rises to three-month high in Nov 2023.

·        Rise in supply surplus in Dec 2023 could be smaller than year-earlier levels amid gradual restart of Taiwan’s Group II unit and firm demand in India.

·        Surplus supply could rise more sharply in Jan 2024 - demand typically falls sharply in January from the previous month, while regional base oils production shows signs of reverting closer to normal.

·        Rising surplus supply increases prospect of pick-up in exports or cut in production to limit supply-build.

·        Any rise in surplus supply likely to consist more of Group II and Group III base oils rather than Group I base oils.

·        Asia’s November base oils exports fall to four-month low on dip in supplies from northeast Asia.

·        Drop in exports reflects signs of tighter supplies of Group I and Group II base oils, build-up of Group III supplies.

·        Lower exports coincides with signs of more muted regional demand that boosts blenders’ preference to maintain lower stocks.  

·        Lower November exports partially counters impact of more muted regional demand but leave refiners with larger volumes to clear over following weeks, especially of Group III base oils.

·        Market sees signs of pick-up in exports of Group III shipments to more distant markets in Dec 2023, muted rise in shipments from Taiwan and slowdown in flows from Singapore at end-2023.

·        Trend could curb size of regional supply-build at end-2023 in face of seasonal slowdown in demand.  

·        Indonesia’s November Group III base oils exports fall to four-month low, stay unusually low.

·        Any extension of low exports into 2024 could have larger market impact amid heavier round of Group III plant maintenance this year.

·        Demand could also get a boost from more competitive global Group III prices compared with last year.

·        Indonesia exports no Group III shipments to China in Nov 2023 for fifth month, pointing to change in strategy.

·        Sustained pause in exports to China coincides with rise in China’s domestic Group III production – although these supplies lack global OEM approvals.

·        Singapore’s base oils exports to India slump over last four weeks combined to five-month low.

·        Slowdown coincides with tighter Group I availability in southeast Asia and seasonal rise in demand in China.

·        India could see slowdown in very-light grade supplies from Spain, with January shipment from Spain smaller than usual and set to take longer than usual to reach India.

·        India’s sliding very-light grade base oil premium to regional gasoil prices could cut attraction for other overseas refiners to move more supplies to India.

·        India’s December base oils imports include unusual shipment of naphthenic base oils from Brazil.