Asia base oils demand outlook: Week of 10 June

·        Asia’s base oils demand shows signs of seasonal slowdown.

·        Closed arbitrage to growing number of outlets coincides with increasingly firm base oils margins that incentivize refiners to raise output.

·        Weak demand and prospect of rise in surplus supply could put pressure on prices.

·        Concern about downward price pressure could add to slowdown in demand.

·        China’s base oils demand shows signs of extending slowdown.

·        China’s domestic Group II light-grade premium to Shandong diesel prices extends fall even with scheduled plant-maintenance in the country in June 2024 and closed arbitrage to import regional supplies.

·        China’s domestic Group II heavy-grade premium to Shandong diesel prices extends rise.

·        China’s domestic Group II heavy-grade premium to light-grade base oils extends rise to highest in more than two years.

·        Rising Group II heavy-grade premium points to firmer fundamentals for the product.

·        China’s demand for Group II heavy-grade base oils from Taiwan could hold firmer than for light grades, even with upcoming additional tariff cost, amid more limited supply from domestic producers.

·        Firmer demand for heavy grades would give supplies from Taiwan more leverage to pass on higher cost to buyers.

·        Main challenge for heavy-grade supplies from Taiwan to China would be shipments from South Korea, for which China’s import tariff is lower.

·        China’s domestic Group I brightstock premium to FOB Asia cargo prices holds close to lowest in more than four months.

·        China’s lower brightstock premium, and firmer brightstock premium in other markets like India and Europe, could incentivize Asia’s refiners to redirect more shipments to those other markets.

·        Singapore’s base oils exports to southeast Asia extend rebound over last four weeks to highest four-week volume in almost nine months.

·        Exports to southeast Asia rise on surge in shipments to Indonesia, following sustained slowdown in flows to the region over previous two months.

·        A sustained pick-up in shipments to southeast Asia would help to balance out prospect of seasonal slowdown in flows to China and India.

·        CFR India Group II prices stay unusually weak relative to FOB NE Asia cargo prices, keeping arbitrage shut.

·        Closed arbitrage to India puts pressure on Asia’s refiners to target more distant markets like Americas or Europe.

·        Closed arbitrage follows higher-than-usual flow of shipments to India in April and May 2024, boosting importers’ stocks.

·        Signs of price-weakness and weaker supply-demand fundamentals in Asia-Pacific market incentivize India’s blenders to trim stocks at current, higher price levels.

·        India’s Group I brightstock price holds firm relative to FOB Asia prices, contrasts with weaker China brightstock prices relative to FOB Asia prices.

·        Firmer India brightstock price boosts attraction of moving more Asia cargoes to that market rather than to China.