Asia base oils - week of Feb 19: Supply outlook

·        Asia’s base oils supply likely to hold steady ahead of seasonal rise in demand.

·        Asia’s Group I base oils supply likely to improve in coming weeks following expected completion of plant maintenance in Thailand.

·        China's Group I base oils supply likely to tighten during scheduled plant maintenance work in March 2024.

·        Wide premium of Singapore Group I prices over Europe prices sustains incentive to work arbitrage to move Europe/Russian cargoes to markets like India and southeast Asia.

·        Possible closure of Group I plant in Europe in coming months could complicate region’s ability to move more shipments to Asia.

·        Possibility of lower volumes from Europe could magnify Group I supply tightness in Asia following plant-closure in Japan in Q4 2023.

·        Asia’s Group II base oils supply faces pressure from weaker margins, support from resumption of flows from Taiwan.

·        Asia’s Group II supply could get boost from less competitive arbitrage to more distant markets, keeping more shipments within the region.

·        More supplies from US could also move to India/Asia-Pacific region amid competitive prices and ongoing surplus.

·        Asia’s Group III supply likely to be tighter because of ongoing/upcoming plant maintenance work, sustained dip in shipments from Indonesia.

·        South Korea’s January base oils exports stay high even after country’s base oils output fell in Dec 2023.

·        Firm exports, lower output and ongoing refinery run-cuts point to drop in country’s surplus supply.

·        Taiwan’s January base oils exports rebound to ten-month high following completion of maintenance work in Dec 2023.

·        Taiwan’s February exports set to fall from previous month as production issues cut output from late-Jan 2024.

·        Drop in shipments could have more impact on markets like UAE than on China, where demand slowed during lunar new year holidays.

·        Any slowdown in shipments to UAE would follow drop in South Korea’s exports to the country in recent months.

·        Asia’s December base oils exports stay relatively low even as they rise from Nov 2023.

·        Lower-than-usual exports in Dec 2023 and throughout 2H 2023 point to more balanced supply during that period and more limited surplus carried over into 2024.

·        Asia’s firmer base oils prices vs crude/gasoil compared with other regions in early 2024 reflect its more limited surplus supply at start of year.

·        Indonesia’s December base oils exports fall on slump in Group III base oils shipments to five-month low.

·        Fall in shipments includes unusual pause in flows to Europe.

·        Trend suggests global refiners continue to focus on moving more Group III supplies to US rather than to Europe.

·        Trend raises prospect of keeping Europe’s Group III supply lower than usual, especially for supplies from Asia.

·        India’s January base oils imports stay higher for third month even as domestic lube demand eases.

·        Trend raises prospect of further rise in India’s surplus supplies.

·        Drop in January imports from Dec 2023 mostly reflects fall in shipments of very-light grade base oils.

·        India takes delivery of large cargo of Russian origin, mostly of Group I heavy neutrals, in 2H Jan 2024.

·        Shipment from Russia is first cargo-sized volume from the country in more than two years and largest in more than seven years.

·        Surge in Group I supplies from Russia coincides with plant maintenance in southeast Asia, helps to ease Asia’s tight availability of Group I base oils.

·        Any repetition of Group I base oils shipments from Russia could curb India’s demand for supplies from southeast Asia and China.

·        Any repetition of Group I shipments from Russia would need to be at even lower prices following slump in Europe export base oil prices in early-Jan 2024.

·        South Korea’s January base oils exports to Nigeria rise to record-high.

·        Shipments to West Africa markets like Nigeria could provide South Korean refiners with alternative outlet if India’s demand falls in response to rising domestic production capacity.