Asia base oils - week of Nov 27: Supply outlook

·        Asia’s base oils supply likely to stay balanced for next few weeks and at least until restart of Taiwan’s Group II unit.

·        Supply stays balanced despite more limited arbitrage shipments to more distant markets.

·        Fob Asia Group II price discount to Europe prices widens in recent weeks.

·        Wider discount facilitates arbitrage opportunities, especially for heavy grades, and points to availability of some surplus supplies vs few weeks earlier.

·        Less feasible arbitrage to Americas markets adds to attraction of eyeing arb opportunities in markets like Mideast Gulf and Europe, especially if more surplus supplies are available.

·        Signs of pick-up in flows from US to India could add to availability of surplus supplies in Asia.

·        Flow of base oils exports from China show signs of staying lower than at start of Q4 2023.

·        Asia’s Group III supply likely to tighten in Q1 2024 amid round of maintenance work affecting several plants.

·        South Korea’s October base oils exports to India rise to twenty-five month high.

·        Shipments absorb most of South Korea’s surge in total exports in Oct 2023.

·        Shipments more than cover for drop in flows from Taiwan to India in Q4 2023.

·        Shipments highlight India’s strong demand for Group II and Group III base oils.

·        Shipments highlight competition that US suppliers face to tap arbitrage to move cargoes to India.

·        Shipments also highlight repercussions of any slowdown in India’s demand for Group II and Group III base oils as country’s domestic production capacity of the grades starts to rise.

·        Wave of shipments from South Korea likely to trigger rise in India’s total imports in Nov 2023.

·        South Korea’s exports to India show signs of staying higher than usual in Nov 2023, even if down from previous month.

·        South Korea’s base oils exports to southeast Asia fall to ten-month low on dip in shipments to Indonesia.

·        Fall in shipments likely reflects more the impact of rising supplies from Singapore to Indonesia, rather than weaker Indonesian demand.

·        Trend highlights competition for outlets in southeast Asia, especially in the face of slowing demand from China.

·        Trend puts pressure on South Korean supplies to find alternative outlets.

·        Singapore’s steady base oils imports in Oct 2023 mask marked change in source of the supplies.

·        Singapore’s imports from Italy and US surge to two-year high in Oct 2023, following pause or low volumes from both markets in the intervening period.

·        Rise in shipments from Italy especially likely to continue as Singapore lines up alternative supplies following closure of Group I plant in Japan in Oct 2023.

·        Japan had been one of Singapore’s largest suppliers in recent years.

·        Singapore’s base oils imports from Japan halt so far in Nov 2023.

·        Pause in shipments highlights need to line up alternative supply sources.

·        Another cargo of US origin set to reach India in coming week.

·        Shipment would add to India's imports arriving from US in Nov 2023 amid sign of gradual pick-up in arbitrage shipments from US.

·        Rise in shipments suggests cargoes are being lined up at discounted price levels to make arbitrage feasible.

·        Prospect of more surplus light-grade supplies in US at end-2023 and early 2024 raises likelihood of additional shipments being lined up to move to India.

·        Any such trend would coincide with likely-revival in Group II shipments from Taiwan over coming month.