Asia base oils - week of Oct 2: Supply outlook

·        China’s Shandong diesel price premium to crude oil rises, moves close to mid-point level so far this year.

·        Relatively firm diesel values contrast with weak domestic base oils values.

·        Trend deters domestic refiners from raising base oils output.

·        Taiwan’s Group II base oils unit set to undergo two months’ scheduled maintenance work starting in October.

·        Tighter Group II supply and improving Asia base oils prices vs diesel could incentivize other regional refiners to raise output.

·        Plant maintenance/closure in Japan set to curb regional Group I supplies.

·        Weak Group I base oils export prices incentivize other regional producers to maintain lower output.

·        Weak regional Group I export prices keep open arbitrage to other markets like India/Mideast Gulf, removing surplus supply from Asia market.

·        China’s August base oils exports to Singapore rise to one-year high.

·        Steady flows from China could help cushion prospect of drop in shipments from Japan following imminent closure of base oils unit in the country.

·        India’s August base oils supply lags demand for first time in five months.

·        Supply shortfall trims blenders’ inventories ahead of seasonal pick-up in lube consumption from end-Q3 2023.

·        Trend likely to boost blenders’ demand for overseas supplies and importance of keeping arbitrage open.

·        Trend likely to boost overseas refiners’ leverage to target prices that incentivize them to produce base oils.

·        Surge in India’s July imports from Qatar cushions slowdown in Mideast Gulf producer’s shipments to US, Europe and rest of Asia.

·        Shipment of larger-than-usual volume to India coincides with more muted demand and weaker Group III prices in other markets.

·        India’s role as outlet for surplus supplies may get more complicated following start-up of new domestic production capacity.

·        Singapore’s August base oils imports get boost from delivery of large volume of supplies from Netherlands and Hong-Kong.

·        Shipments move from Netherlands to Singapore despite steep Europe Group II price premium to Asia prices.

·        Shipments from Netherlands to Singapore likely help to limit size of any supply-build in Europe during Q3 2023.

·        Trend contrasts with wave of Group II base oils from Asia to multiple outlets in other regions during in 2H 2022.

·        Singapore lines up large cargo in past week bound for Nigeria.

·        The rare shipment coincides with tight spot availability of export cargoes in Europe.

·        Europe’s Group I and Group II prices also remain elevated versus Asia prices, making the arbitrage from Asia more feasible.  

·        South Korea displaces Singapore as Vietnam’s largest source of base oils in first eight months of the year.

·        Trend points to growing competition between the two key regional producers for market share in Asia’s fastest-growing markets.