Asia base oils - week of July 31: Supply outlook

·        China’s Shandong diesel prices rise faster than crude over past month; premium to crude rises close to average levels so far this year.

·        China’s imposition of consumption tax on industrial white oils increases costs, incentivizes Chinese refiners to cut white oil/base oil run-rates.

·        Impact of any run-cuts likely to be felt in coming weeks when demand is set to get a seasonal boost.

·        India’s retail diesel premium to crude stays unusually high.

·        Slowdown in regional plant maintenance work in Q3 2023 cushioned by additional/extended shutdowns and signs of slowdown in supplies from some key producers.

·        Singapore’s June base oils exports to southeast Asia exceed shipments to China and India combined for a second month.

·        Trend highlights growing size and importance of southeast Asia market at a time when Chinese demand is stuttering and India’s domestic supply is set to rise.

·        Singapore’s base oils exports show signs of slowing in last four weeks compared with May and June, even after completion of plant maintenance work in Q2 2023.

·        Slowdown in shipments points to possibility of other factors impacting supply such as run-cuts.

·        Singapore’s imports of Group III base oils rebounds to almost 49,000t in Q2 2023, from unusually-low levels of less than 15,000t in Q1 2023.

·        Rise in flows to Singapore in Q2 2023 coincide with signs of more plentiful Group III supplies in Europe and weakening base oils prices in that region.

·        That trend in Europe shows signs of extending into Q3 2023, raising prospect of more Group III supplies moving to Singapore over coming months.

·        Surge in Group III base oils shipments from Mideast Gulf to Asia in May could reflect moves to limit supply-build in US and Europe.

·        Any extension of that pattern would leave Asia facing its own supply-build in Q3 2023 and add to pressure on regional prices.

·        India’s June base oils supply rises to second-highest in more than a year on high domestic output and imports.

·        India’s June supply exceeds demand for third month.

·        Rising surplus supply over demand likely to trigger slowdown in imports or rise in exports.

·        Pakistan’s revival in base oils imports from end-Q1 2023 provides valuable outlet for producers like South Korea and Singapore.

·        Shipments from those two markets to Pakistan show signs of slowing in three months to July.

·        Pakistan’s May base oils supply rises to five-month high.

·        Higher supply and falling demand add to prospect of slowdown in requirements.