Asia base oils - week of Feb 5: Supply outlook

·        Asia’s base oils supply shows signs of tightening in the face of plant shutdowns, run-cuts and complicated arbitrage flows.

·        Asia’s Group I supply shows signs of growing tightness as plant maintenance, lower production and lower regional exports cut availability.

·        Tighter Group I supply coincides with seasonal rise in demand throughout Asia-Pacific region.

·        Asia’s ex-tank Group I SN 500/bright stock price premium to fob Europe prices increases to widest in close to a year.

·        Widening premium boosts attraction of eyeing cargoes from other markets like Mideast Gulf and Europe to move to Asia.

·        High freight costs and logistical difficulties of shipments from Mideast Gulf or Europe could complicate any such arbitrage shipments.

·        Asia’s Group II supply likely to be lower than expected as unplanned production issues in Taiwan slow down pace of exports from that market.

·        Lower Group II base oils margins add to incentive for other regional refiners to maintain or extend run-cuts.

·        Asia’s Group III base oils supply likely to tighten because of planned plant maintenance work in southeast and northeast Asia during Q1 2024.

·        China is an outlier - its base oils supply shows signs of rising in early 2024 on higher output and imports.

·        Trend could curb its requirements for additional supplies from regional refiners.

·        Thailand’s December base oils output falls to thirteen-month low.

·        Output likely to extend slide in Jan 2024 and Feb 2024 because of scheduled and unplanned plant maintenance work.

·        Subsequent drop in Group I base oils supply compounds regional tightness.

·        Timing of drop in supply coincides with seasonal rise in demand, magnifying impact of the tightness.

·        Japan’s December base oils output falls for ninth month year on year.

·        Japan’s December base oils exports duly fall to second-lowest since 2012, with slump in shipments to South Korea and Singapore.

·        Drop in shipments forces those countries to line up supplies from other sources to cover the shortfall.

·        Singapore’s base oils exports show signs of recovering in Jan 2024 from previous month but stay relatively low compared with previous five months to Nov 2023.

·        Singapore’s base oils imports from China could be higher than expected in Jan 2024 amid signs of pick-up in shipments using different import code.

·        Trend began during final months of 2023.

·        India’s December base oils supply stays higher than usual for a second month, exceeds demand for third month.

·        India’s persistent supply surplus adds to blenders’ stocks, curbing urgency to secure additional supplies of certain grades.

·        Higher surplus eases impact of any slowdown in shipments of very light grades from Saudi Arabia.

·        Rising CFR India prices for some grades point to more limited surplus of those grades amid moves to lock in additional supplies.

·        Rising CFR India prices for some grades boosts value of existing inventories of those grades.