Asia base oils - week of Nov 20: Supply outlook

·        Asia’s base oils supply stays relatively balanced at a time of year when market often faces surplus volumes.

·        Asia base oils supply likely to improve from Dec 2023 following restart of Taiwan’s Group II unit.

·        Arbitrage to move Group II supplies from Asia to Europe stays less attractive than last year.

·        Arbitrage to move Group II supplies from Asia to Americas gets harder amid more competitive US prices.

·        Less feasible arbitrages point to relatively balanced supply so far in Q4 2023.

·        That dynamic could change after Taiwan’s base oils exports resume.

·        Rise in China’s domestic base oils supply could have limited impact on regional market after Asia’s refiners already redirected more supplies to other markets this and last year.

·        South Korea’s October base oils exports rebound to eight-month high.

·        Rise in shipments covers for drop in supplies from Taiwan.

·        Rise in shipments would need to continue through Nov 2023 to extend that cover, with Taiwan’s Group II unit set to resume operations in Dec 2023.

·        Rise in shipments coincides with restart of several base oil units in China in Nov 2023.

·        A further rise in base oils supply in China would likely leave more supplies from South Korea targeting other markets instead.

·        Asia’s surplus of base oils supply over demand falls in Sept 2023, slashing size of surplus in Q3 2023.

·        Size of Q3 2023 supply surplus falls by more than half yoy.

·        Smaller surplus curbs refiners’ need to adjust prices to make arbitrage feasible to other regions.

·        Smaller surplus precedes plant maintenance work and plant closure in region in Q4 2023.

·        Trend likely to leave regional supply more balanced through Q4 2023.

·        Taiwan’s October base oils exports fall to lowest since Sept 2021 because of plant maintenance work.

·        Size of fall in exports suggests refiner built limited stocks ahead of the shutdown.

·        Size of fall in exports and refiner’s limited stocks magnifies impact of the shutdown.

·        Drop in Taiwan’s Group II supplies in Q4 2023 keeps regional supply relatively balanced, limits need for regional refiners to target other markets with arbitrage shipments.  

·        Taiwan’s October base oils exports to SE Asia/India slump to two-year low.

·        Almost complete pause in exports to Singapore coincides with slowdown in supplies from Japan to the island-state.

·        Pause in exports to India coincides with drop in arbitrage shipments from US to India.

·        Drop in exports likely boosts demand for supplies from South Korea in Q4 2023 to cover shortfall.

·        Singapore’s base oils imports from Japan extend pause through Nov 2023, cutting four-week supply to lowest in end-2021.

·        Drop in imports from Japan increases need for alternative Group I base oils supplies.

·        Tighter Group I supply in southeast Asia could curb flow of arbitrage shipments to markets outside the region.

·        India’s October base oils imports hold steady as rising volumes from Mideast Gulf balance out slowdown in shipments from South Korea, Taiwan, US.

·        Pick-up in supplies from other markets highlights ready availability of alternative sources and need for sellers to maintain competitive prices to keep open the arbitrage to India.

·        Narrowing cfr India Group I base oil premium to Asia prices could impact flow of arbitrage shipments to the country from Asia.