Global/Asia base oils – week of June 26: Supply outlook

·        Global base oils supply rises to one-year high in March and by more than 520,000t from February.

·        Global base oils supply was even higher in March 2022, before falling sharply over following months, while base oils demand rose even as lube demand slipped.

·        Global base oils supply shows signs of holding firmer in Q2 2023, while demand continued to fall.

·        Global base oils supply surplus over lube demand widens in March even with seasonal rise in lube consumption.

·        Surge in surplus supply in Q1 2023 vs Q1 2022 leaves wave of supplies to clear through arbitrage shipments throughout Q2 2023.

·        Surplus supply cushions impact of plant maintenance work in all the key markets during Q2 2023.

·        Surplus supply could linger in Q2 2023 and especially Q3 2023 following completion of plant maintenance and as firm base oils values vs diesel incentivize refiners to maintain higher run-rates.

·        China’s Shandong diesel premium to crude oil extends fall to lowest since start of year.

·        Lower diesel premium to crude and higher base oils premium to crude incentivizes Chinese refiners to boost base oils output.

·        India’s retail diesel premium to crude oil stays unusually wide, incentivizing refiners to maintain high run-rates.

·        Asia-Pacific base oils plant maintenance mostly set to draw to a close in coming weeks.

·        End of plant maintenance set to coincide with seasonal slowdown in regional demand in Q3 2023, in addition to muted Chinese demand.

·        China’s May base oils imports fall to four-month low, highlighting country’s weaker-than-expected demand for regional supplies.

·        Trend suggests China’s domestic supply is increasingly sufficient to cover country’s requirements.

·        Singapore’s May base oils exports hold firm even with plant maintenance work in Q2 2023.

·        Steady exports keep regional market well-supplied through Q2 2023, curbing impact of plant maintenance work in other countries.

·        India’s May Group II light and especially heavy-grade imports fall mostly because of slump in shipments from Singapore.

·        Muted price support from lower supplies in India reflects ready availability from other sources like US, as well as plentiful supplies from domestic refiners.

·        India faces prospect of pick-up in supplies from Singapore in Q3 2023 as well as arrival of more shipments from US.

·        South Korea’s May exports to India/UAE fall to three-year low, reflecting difficulty of moving surplus supplies to outlets being targeted by refiners in other regions.

·        Fall in exports to India has scant impact on prices or demand in India as buyers line up supplies from other sources.

·        Trend likely to continue at least through early Q3 2023.

·        Singapore’s rising base oils exports to southeast Asia in June partially balance out its slowdown in shipments to China and India.

·        Southeast Asia’s ability to absorb more base oils supplies over the coming months may be more constrained than last year amid weaker demand.