Asia base oils - week of July 17: Supply outlook

·        China’s Shandong diesel premium to crude oil steadies, stays lower than usual.

·        China's discounted prices for some crude oil supplies could compensate for lower diesel values and slow moves to cut refinery run-rates.

·        India’s retail diesel premium to crude oil prices stay at levels that incentivize refiners to maintain high run-rates.  

·        Addition of China’s consumption tax on domestic industrial white oils cuts their competitiveness vs base oils.

·        Trend likely to reduce domestic refiners’ incentive to produce white oils.

·        Several Chinese refiners start maintenance work in June-July 2023 lasting from several weeks to several months.

·        Some new production capacity expected to start-up in China later in Q3 2023.

·        Some plant maintenance in South Korea set to end in July 2023. Some plant maintenance set to begin in August 2023.

·        Weaker base oil margins and less feasible arbitrage opportunities to Americas add to refiners’ incentive to trim output.

·        Taiwan’s base oils supply shows signs of staying low in July, several months before scheduled plant maintenance work.

·        Asia’s May base oils supply edges up from April, stays lower than Q1 2023 levels as plant maintenance in Q2 2023 gathers pace.

·        Asia’s May base oils exports dip to five-month low; April-May exports fall more steeply than during Q2 2022.

·        Dip in exports likely extends into June 2023.

·        Lower exports contrast with rising supply in May, suggesting refiners built stocks ahead of plant maintenance work.  

·        Lower exports coincide with signs of firmer demand in southeast Asia.

·        Lower exports and firmer demand leaves Asia-Pacific market relatively well balanced at start of Q3 2023.

·        Refiners would need to manage supply carefully during Q3 2023 to sustain supply-demand balance – weaker margins incentivize such a move.

·        Sustained slowdown in Indonesia’s Group III base oils exports shows little signs of changing.

·        Indonesia is a key source of Group III+ base oils with approvals.

·        Prospect of continuation of unpredictable and lower supply and higher prices increases incentive for blenders to seek alternatives instead.

·        Indonesia’s Group I exports stay low in May, reflecting firm domestic demand, sufficient regional supply and weak Chinese buying interest.

·        Indonesia’s Group I exports have tended to rise when export prices climb to levels that incentivize higher base oils production.

·        There are few signs of such a rise in export prices in the coming months.

·        Singapore’s base oils exports rebound last week after slumping in first week of July.

·        Unusual volatility in export volumes points to logistical rather than plant-related issues.

·        Rising shipments to Indonesia and India over past month contrast with slowdown in shipments to China.

·        India’s base oils supply gets boost from arrival of wave of arbitrage shipments in June, including sustained flow of shipments from US.

·        Arbitrage flows from US extend into July.

·        Trend reflects Indian market’s ability to absorb unusually large volumes, especially compared with other markets.

·        Healthy stocks, ongoing arbitrage flows and weaker demand during monsoon season curb Indian buyers’ urgency to lock in more supplies.

·        Price-pressure from higher feedstock costs and seasonal rise in demand from late September likely to boost interest in supplies deemed to be competitive.