Asia base oils - week of Aug 7: Supply outlook

·       China’s Shandong diesel premium to crude extends rebound to highest since May.

·        India’s retail diesel premium to crude oil falls to lowest since November 2022, stays high.

·        China's firm diesel premiums contrast with weak base oils values vs diesel and crude oil.

·        Trend incentivizes refiners to focus on diesel output, cut base oils output.

·        China’s base oils output shows signs of falling in July amid unexpected/extended plant maintenance and run-cuts.

·        Price dynamics incentivize China’s refiners to maintain similar output strategy in August.

·        Recovery in South Korea’s base oils supplies could take longer than expected following maintenance work amid signs of firm domestic demand, steeper-than-expected fall in output in late Q2 2023.

·        Japan’s June base oils output stays unusually firm even amid round of plant maintenance work throughout Q2 2023.

·        Firm output coincides with and helps to sustain high volume of shipments to Singapore for more than a year.

·        That dynamic will change in coming months following closure of another Group I base oils unit in Japan.

·        Plant closure will cut Japan’s base oils output and likely impact exports to Singapore especially.

·        Singapore would then need to line up alternative sources to cover for loss of those supplies.

·        Japan’s export to some Asia-Pacific markets like Thailand and Hong Kong already fell sharply in recent months amid drop in structural supply.

·        Markets like Thailand could curb their own Group I base oils exports in response to drop in supplies from Japan.

·        Drop in Group I supply in Asia-Pacific set to leave producers like Thailand and Singapore with more outlets for their own exports.

·        Drop in Japan’s Group I exports to southeast Asia could trigger supply response from Singapore, whose exports remain much lower than pre-2020 levels.

·        Thailand moves wave of shipments to India, Mideast Gulf and Europe in June 2023.

·        Wave of arbitrage shipments takes advantage of Europe’s high prices and tight supply, helps Thailand to avoid supply-build ahead of seasonal slowdown in Q3 2023.

·        Wave of arbitrage shipments contrasts with dearth of shipments from Thailand to China in Q2 2023.

·        Trend highlights growing opportunities in other markets and benefit of limiting exposure to China market.

·        Trend highlights global impact of Europe’s structural fall in Group I base oils supply.