Asia base oils demand outlook: Week of 8 July

·        Asia’s base oils demand could get support from blenders’ moves to start to lock in supplies for delivery later in Q3 2024.

·        Signs of more balanced-than-usual fundamentals at start of Q3 2024 and firm crude oil prices curb risk of sharp price correction.

·        Prospect of limited downward price pressure could add to blenders’ willingness to start negotiations for shipments for delivery later in Q3 2024.

·        China’s base oils demand shows signs of holding steady at lower levels.

·        But tighter domestic supply could boost demand for overseas supplies, especially of Group II heavy grades.

·        China’s domestic Group II base oils prices hold steady versus diesel prices and rise versus FOB NE Asia prices in June 2024, when domestic output fell to a seven-month low.

·        Price strength extends into early July 2024, contrasting with weaker FOB Asia prices.

·        Domestic China price response to lower output leaves arbitrage still hard to work, but more feasible than in recent months.

·        Base oils demand throughout rest of Asia faces seasonal slowdown ahead of likely drop in lube consumption in month of August.

·        Slowdown at start of Q3 2024 reflects seasonal factors more than concern about build-up of large surplus supply during Q2 2024.

·        Lube demand shows signs of holding firm at least through May 2024, limiting size of build-up of surplus base oils supplies in the region.

·        More limited build-up of surplus supplies gives refiners more options to manage impact of seasonal slowdown in demand at start of Q3 2024.

·        Japan’s domestic base oils/lube demand extends rise in May 2024 for fourth time in five months.

·        Rising demand compounds impact of Japan’s falling base oils supply.

·        Domestic demand accounts for almost all of Japan’s base oils supply in May 2024.

·        Domestic demand typically accounted for around 70% of Japan’s total base oils supply in 2023.

·        Stronger domestic demand and lower output curb volume of supplies available for export.

·        Thailand’s May lube demand growth gathers pace after consumption flatlined or fell during the previous three months.

·        Rising lube demand so far this year coincides with pick-up in base oil imports and lower domestic base oils output.

·        Trend points to rising demand for premium-grade imports and shrinking demand for Group I base oils.

·        Scenario could free up more domestic Group I supplies for export to overseas markets.

·        Scenario could also incentivize domestic refiners to maintain lower run-rates in view of lower prices for export shipments than prices for domestic sales.

·        Thailand refiners’ Group I supply surplus rises in May 2024 even with firm domestic lube demand and rise in base oil exports.

·        Rising surplus adds to attraction of maintaining lower run-rates.

·        India’s more muted base oils demand in recent weeks coincides with sharp slowdown in Singapore’s base oils shipments to the country over the past month.

·        Any extension of that trend from other sources would speed up consumption of Indian buyers’ large stocks.

·        CFR India Group II price premium to FOB NE Asia prices stays too narrow to make arbitrage feasible.

·        But CFR India premium continues to widen gradually.

·        Any continuation of that trend would start to make the arbitrage more feasible in a few weeks’ time.

·        Prospect of buyers’ drawdown of current stocks over the coming weeks, and preparation for a seasonal pick-up in consumption from end-Q3, likely to support pick-up in buying interest in few weeks’ time.