Asia base oils - week of Oct 23: Supply outlook

·        Asia’s base oils supply likely to stay balanced as low margins, plant closure squeeze Group I supply.

·        Ongoing plant maintenance in Taiwan curbs Group II base oils supply.

·        Closed arbitrage from US slashes flows from that market to India.

·        China’s domestic Shandong diesel premium to crude oil extends slide to three-month low.

·        Lower diesel premium to crude contrasts with firmer domestic base oil premium to diesel.

·        Trend incentivizes China’s domestic refiners to boost base oils output.

·        Refiners likely to remain wary of any such moves in face of slacker-than-usual demand.

·        Group II base oil exports from Taiwan slump in October amid ongoing plant maintenance work.

·        Japan’s Group I exports likely to fall more following permanent closure of another base oils plant in the country.

·        More limited supply in Q4 2023 follows smaller-than-expected rise in Asia’s surplus of supply over demand in August and in Q3 2023.

·        Smaller supply-build in Q3 2023 and regional plant maintenance work in Q4 2023 raises prospect of relatively balanced supply over coming months.

·        Trend likely to mean avoidance of repeat of last year’s surge of arbitrage shipments from Asia to more distant markets.

·        Trend likely to give regional refiners more leverage over prices, especially if arbitrage from US stays shut.

·        South Korea’s September base oils exports stay lower than usual even after completion of plant maintenance work in July.

·        Muted recovery in exports contrasts with firmer pick-up in domestic base oils production.

·        Trend points either to rise in stocks or diversion of base oils back into diesel pool at a time when margins remained weak.

·        Muted recovery in South Korea's base oils exports curbs size of regional supply-build in Q3 2023.

·        South Korea’s September base oils exports to southeast Asia fall to nine-month low as dip in supplies to Indonesia outweighs surge in flows to Philippines.

·        Trend reflects more the competition with Singapore for market share in different countries rather than the current demand dynamics in those markets.

·        South Korea’s lower exports to Indonesia coincide with Singapore’s rising share of that market’s imports, and vice-versa for Philippines.

·        Indonesia’s Group III base oils exports rebound to thirteen-month high in August, reverting to the higher levels in 1H 2022.

·        Rise in exports could reflect cargo loadings pushed from July into August, rather than rise in Group III base oils production.

·        Any extension of rise in exports into September would point to more sustained rise in production.

·        Any such move would add to global supplies of Group III base oils with approvals.

·        India likely to see steady rather than higher flow of shipments reaching the country from Asia in October.

·        South Korea’s September base oils exports to India hold firm at similar levels to August.

·        Singapore’s base oils exports to India show signs of holding steady in recent weeks at lower levels than August.

·        Last large September-loading cargo from Taiwan moves to India, arrives in mid-October, before pause in any subsequent flows from Taiwan.

·        India takes delivery of more Group I heavy grades from Thailand in October, extending large flow of arbitrage shipments from the southeast Asian country in recent months.

·        India shows signs of taking more naphthenic base oils from China.