Asia base oils supply outlook: Week of 7 Oct

·        Asia base oils price premium to feedstock/competing fuel prices stays high even after sharp drop in past week.

·        Still-firm margins incentivize regional refiners to maintain or raise production levels.

·        Any extension of sharp drop in margins could start to change that incentive.

·        Arbitrage to move cargoes from US to Asia stays hard to work even with recent dip in US prices.

·        More supplies move from US to India in Oct 2024, even with hard-to-work arbitrage.

·        More supplies move from South Korea to Latin America in recent weeks.

·        Flow of any additional arbitrage shipments from Asia to Latin America is likely to ebb amid less feasible arbitrage.  

·        South Korea’s base oils output likely to be lower in Sept 2024 and especially Oct 2024 because of scheduled plant maintenance work.

·        Impact of lower output could be cushioned after Asia’s base oils exports extend sharp rise in Aug 2024 to second-highest level in seventeen months.

·        Exports rise even amid signs of drop in region’s base oils output in Aug 2024.

·        Dynamic would leave refiners with more depleted supplies and blenders with replenished stocks.

·        Asia’s base oils prices hold firm throughout Aug 2024 even with rise in exports.

·        Firm prices suggest demand was strong enough to absorb the shipments.

·        Blenders’ higher stocks, and prospect of seasonal slowdown in demand, likely to curb impact of drop in supply caused by maintenance work at several plants in the region.

·        Singapore’s base oils exports over last four weeks pause at higher, more typical levels after drop in shipments in Aug 2024.

·        Larger-than-usual flow of shipments from Europe to Singapore shows signs of continuing, with another large cargo expected to arrive in early Nov 2024.

·        Japan’s base oils supply and exports likely to stay lower than usual because of extended plant shutdown.

·        Japan’s base oils output falls in Aug 2024 to lowest since end-2021.

·        Drop in output cuts further the country’s availability of supplies for overseas markets.

·        Japan’s base oils exports to southeast Asia fall by 60% in Aug 2024 and for eleventh month from year-earlier levels.

·        Dynamic leaves that region facing increasingly tight Group I base oils supply, while firm marine lube consumption supports strong Group I demand.

·        China’s paraffinic base oils output rises in Sept 2024 close to highest since end-2021.

·        Output surges following restart of several Group II units.

·        Rising domestic base oils output should cover more of China’s domestic base oils requirements, curbing need for imports.

·        Any such dynamic could free up more shipments from markets like Taiwan to move to outlets like southeast Asia.

·        Current price levels sustain attraction of moving more shipments to China.

·        Extension of that trend would point to firmer demand in China, curbing prospect of pick-up in surplus volumes to other outlets from markets like Taiwan.

·        Taiwan’s base oils exports show signs of falling in Sept 2024 from previous two months.

·        Any pick-up in exports in Oct 2024 could be more muted as adverse weather delays cargo loadings at beginning of the month.