Asia base oils - week of July 24: Supply outlook

·        China’s Shandong diesel premium to crude oil rises after falling close to lowest in a year.

·        Firmer diesel premium and weaker domestic base oils premium to diesel incentivizes refiners to focus on producing more motor fuels.

·        China’s diesel demand faces seasonal slowdown amid hot, rainy weather.

·        India’s retail diesel premium to crude oil stays high, even with rising crude oil prices.

·        High premium incentivizes high run-rates.

·        Peak base oils plant-maintenance season ends, but more maintenance work takes place at least through August.

·        Squeezed margins incentivize other refiners to trim run-rates.

·        Market faces additional plant maintenance in Q4 2023, and upcoming closure of Group I base oils plant.

·        Asia’s base oils supply surplus over demand narrows throughout Q2 2023, pointing to smaller supply-overhang being carried into Q3 2023.

·        China’s domestic base oils supply surplus may be smaller than expected over coming weeks as additional plant maintenance counters seasonal dip in demand.

·        South Korea’s June base oils exports fall to lowest since May 2020, when lockdowns slashed base oils demand.

·        Fall in South Korea’s Q2 base oils exports curbs supply-build ahead of seasonal slowdown in demand during Q3 2023.

·        Trend leaves South Korea’s refiners better positioned to maintain supply-demand balance during Q3 2023 by adjusting output in response to lower demand.

·        Trend may be more challenging following restart of base oils unit after maintenance; trend may get support from additional shutdown in August.

·        Any sign of build-up of surplus supplies would prompt buyers to hold back in anticipation of steeper price adjustment to clear surplus volumes.

·        Any sign of more balanced supplies would incentivize steadier buying.

·        Fall in Singapore’s base oils exports in Q2 2023 from Q1 2023 add to signs of more balanced regional supply heading into Q3 2023.

·        Like South Korea, trend of maintaining exports at level that avoid supply-build in Q3 2023 may be more challenging following completion of plant maintenance work.

·        Surge in premium-grade supplies from Qatar to Asia in Q2 2023 contrasts with steadier flows to Europe and US.

·        Trend could reflect moves to avoid oversupply in Europe/US markets, where Group III prices faced more pressure in recent months.

·        Trend likely helps to cushion impact of Group III plant maintenance work in Asia in Q2 2023.

·        Any extension of that trend into Q3 2023 could leave supply exceeding regional demand.

·        India’s base oils supply stays plentiful despite slowdown in shipments from South Korea.

·        Arbitrage shipments from other regions more than counter slowdown in exports from South Korea in Q2 2023.

·        India’s supply gets further boost from arrival of more US shipments in month of July.