Asia base oils supply outlook: Week of 26 Aug

·        Asia’s base oils price premium to feedstock/competing fuel prices extends rise, incentivizing refiners to maintain or raise output through Q3 2024.

·        Surplus of supply over demand typically rises strongly in the months of July and August each year.

·        Firm base oils premium to gasoil increases prospect of such a scenario and subsequent need to clear that surplus.

·        Sustained strength of base oils premium could also point to supply-demand fundamentals that are more balanced than usual.

·        Firm premium to gasoil coincides with closed arbitrage from US to Asia, curbing flow of additional spot shipments from that market.

·        Firm premium coincides with open arbitrage from Asia to Americas, with any such shipments trimming regional supplies.

·        Firm premium to gasoil coincides with increasingly wide premium of Europe Group II prices over FOB NE Asia prices, making that arbitrage more feasible.

·        South Korea’s base oils exports show signs of staying lower than usual in Aug 2024.

·        Any such slowdown would precede scheduled shutdown of major Group II unit in South Korea in Sep 2024.

·        Taiwan’s base oils exports rise strongly in H2 Aug 2024.

·        Total exports in Aug 2024 likely to hold above typical levels this year, stay well below levels in July 2024.

·        Saudi Arabia’s base oils exports show signs of rising strongly in Aug 2024 vs July 2024, with pick-up in shipments to UAE and India.

·        Singapore’s base oils exports stay lower over past four weeks, contrasting with surge in shipments in July 2024.

·        Singapore’s base oils exports rise to eleven-month high in July 2024.

·        Rise in exports adds to pick-up in shipments from Taiwan, South Korea and China in July 2024.

·        Asia’s base oils price premium to gasoil prices holds firm in July 2024 and this month, suggesting demand was sufficient to absorb the rise in exports from those sources.

·        Asia-Pacific region began Q3 2024 with smaller-than-usual supply surplus, supporting such a scenario of sufficient demand at least in first few weeks of the quarter.

·        Singapore takes delivery over past week of more large shipments from the US and Netherlands.

·        Shipments from US become increasingly frequent; shipments from Netherlands remain rarer.

·        Shipments add to regional supply, at a time when arbitrage from US to Asia remains shut.

·        China’s base oils imports account for less than 20% of country’s base oils supply in July 2024.

·        Share is lowest in nine months, extends trend of shrinking share throughout this year from more than 28% in 2023.

·        China’s ongoing fall in requirements for overseas supplies puts onus on regional refiners to continue to focus on targeting and expanding other outlets for their base oils shipments.