Asia base oils - week of Oct 9: Supply outlook

·        Lower outright crude and diesel prices could boost attraction of producing more base oils if prices maintain current levels.

·        Any incentive to raise supply in coming weeks would coincide with slowing demand in China, Europe and US.

·        Trend would boost importance of markets like southeast Asia, India and Mideast Gulf to absorb more supplies.

·        Group I/II plant maintenance work in region in Q4 2023 likely to cushion impact of pick-up in South Korean supplies.

·        South Korea’s August base oils output already recovers to three-month high even when base oils margins were unusually weak.

·        South Korea’s August base oils output as share of country's refined products output rises to highest in fifteen months.

·        Rebound in output coincides with fall in Asia base oils prices to steep discount to regional diesel prices, ICIS data shows.

·        Rebound in output boosts regional supply, complicates regional refiners’ leverage to target higher prices in response to weak margins as they seek outlets for supplies.

·        Rebound in output boosts importance of keeping shut the arbitrage from US to markets like India.

·        Japan’s August base oils output falls to six-month low even before start of scheduled plant maintenance work in September.

·        Base oils output faces prospect of falling further over coming months because of maintenance work and plant closure.

·        Asia’s Group I base oils prices stay weak relative to diesel in Q3 2023 even with fall in Japan’s output.

·        Trend suggests market yet to feel impact of drop in supply or that seasonal slowdown in demand balanced out the drop in supply.

·        Market likely to reflect more the drop in supply when demand is firmer.

·        Thailand’s August base oils output holds firm despite seasonal slowdown in regional demand and weak regional prices.

·        Steady base oils output contrasts with falling base oils production in Japan.

·        Prospect of further drop in supply from Japan set to increase region’s reliance on Group I supplies from Thailand and increase impact of any unexpected changes in its supplies.

·        Thailand’s base oils supply lags demand in August for first time in four months on pick-up in domestic demand, steady arbitrage shipments.

·        Thailand’s lower stocks and prospect of firmer domestic demand could curb refiners’ need to clear large volumes of supplies at prices that make arbitrage feasible to outlets like India.