Asia base oils supply outlook: Week of 15 July

·        Asia’s base oils price premium to regional gasoil prices holds steadier after sliding over past month.

·        Premiums stay well above year-earlier levels, especially for Group II heavy grades and Group I base oils.

·        Firmer premiums point to more balanced supply-demand fundamentals, limit incentive for refiners to trim output.

·        Tight Group I supply in Europe curbs prospect of pick-up in arbitrage shipments from that market to Asia, boosts attraction of alternative sources like Russia.

·        FOB NE Asia Group II heavy-grade price premium to light grades rises further to widest since late-2021.

·        Sustained rise in heavy-grade premium points to increasingly firm fundamentals for the product.

·        Any pick-up in demand from buyers from Americas markets would help to remove surplus supplies from Asia-Pacific region.

·        Arbitrage to line up such shipments remains more feasible than in April-May 2024, especially for heavy grades.

·        Buyers could be more interested in such shipments as insurance against any supply-related disruptions in US over coming months.

·        High freight costs could curb any such moves, complicating removal of surplus supplies from the region.  

·        South Korea’s base oils exports show signs of falling in June 2024, shrinking regional surplus carried into Q3 2024.

·        Exports show signs of reviving so far in July 2024.

·        Taiwan’s base oils exports show signs of rebounding strongly in recent weeks after falling to four-month low in June 2024.

·        Taiwan’s base oils exports to China slump in June 2024, with signs of trend extending into July 2024.

·        Slowdown could reflect impact of China’s removal of tariff concessions on Taiwan’s base oils shipments to China from mid-June 2024.

·        Rise in shipments in recent weeks instead triggers surge in flows to southeast Asia.

·        Any extension of the trend could add to competition for market share in southeast Asia.

·        Singapore’s base oils exports show signs of reviving in H1 July 2024, following slowdown in June 2024.

·        Singapore likely to take delivery of additional supplies of US origin after US base oils exports to the island-state stay unusually high in May 2024.

·        Singapore duly takes delivery last week of a shipment of US origin for first time in more than a month.

·        Unusually-large flow of shipments from US to Singapore adds to Asia-Pacific region’s supply, tightens US supply.

·        Asia’s base oils supply rises to nine-month high in May 2024 mostly on rebound in output from South Korea.

·        Asia’s May base oils exports duly rise to fourteen-month high, with wave of shipments moving to southeast Asia and India.

·        Rise in supply and exports boost regional buyers’ stocks ahead of seasonal slowdown in demand at start of third quarter of the year.

·        Subsequent slowdown in demand for additional base oils supplies through rest of Q2 2024 raised prospect of larger build-up of surplus supplies in the region.

·        Slowdown in exports from key sources like Singapore, Taiwan and South Korea in June 2024 could partially counter impact of slowdown in demand, curbing size of any supply-build.

·        Larger-than-expected rise in Asia’s lube demand in May 2024 also curbed size of supply-build in May 2024.

·        Trend raises prospect of limiting size of regional supply-build before Q3 2024.