Asia base oils demand outlook: Week of 3 June

·        Asia’s base oils demand likely to stay more muted amid slower buying interest in key regional markets.

·        Expectations that supply is readily available, and concern about exposure to price correction, add to attraction for buyers to maintain lower stocks.

·        Firm base oils margins coincide with supply-demand fundamentals that remain more balanced than usual so far in Q2 2024.

·        Prospect of weaker demand and higher supply could complicate sustainability of firm base oils margins.

·        Asia’s lube demand likely to hold in a narrower range over the coming months following the seasonal volatility of consumption at end-Q1 2024 and early Q2 2024.

·        Steadier demand facilitates planning for base oils refiners and for blenders, which are likely to maintain lower stocks heading into the third quarter of the year.

·        Demand could get further support from signs of supply-demand dynamics that have stayed more balanced than usual for the time of year.

·        Any extension of more balanced supply-demand dynamics would curb the possibility or size of a price adjustment to help clear surplus volumes.

·        Any larger-than-usual increase in regional supplies could by contrast increase concern about pressure on prices.

·        China’s base oils base oils demand shows signs of staying muted.

·        China’s domestic Group II N150 premium to diesel falls even with shutdown of several Group II base oils units in May-June 2024.

·        Lower premium and lower supply point to lower demand.

·        China’s demand for base oils from Taiwan could dip as planned addition of tariffs from mid-June 2024 increases cost of shipments from Taiwan.

·        Move would add to incentive for domestic buyers to switch supplies to domestic sources.

·        China’s domestic Group I brightstock premium to FOB Asia prices steadies after falling to lowest in almost four months.

·        Lower premium erodes attraction of moving more arbitrage shipments to China.

·        Singapore’s base oils exports show signs of rising in May 2024 to their highest level this year.

·        Singapore’s base oils exports over last four weeks rise strongly and at the same time to China, India and southeast Asia.

·        India’s base oils demand could stay more muted as buyers hold back in anticipation of lower prices and rise in surplus supplies in overseas markets in the coming months.

·        CFR India Group II price differential to FOB NE Asia prices extends slide since early April 2024.

·        CFR India Group II light-grade price falls at end-May 2024 to steepest discount to FOB NE Asia cargo prices in years.

·        Discount to FOB NE Asia prices complicates arbitrage, curbing demand.

·        Firm CFR India N70 premium to Singapore gasoil prices incentivizes Asia’s refiners to maintain or raise output even as demand slows.

·        Expectations of lower prices incentivize country’s blenders to focus on consuming or selling existing stocks at current, higher price levels.

·        Move would follow recovery in India’s surplus supplies in April 2024.

·        India’s surplus of supply over demand likely extended into May 2024 amid signs of still-high base oils imports.

·        Buyers likely to target another build-up in inventories from end-Q3 2024, ahead of seasonal pick-up in demand in Q4 2024.

·        Signs of steadier lube consumption in Pakistan and steady drop in country’s base oils output could boost demand for overseas base oils supplies.

·        South Korea and Singapore would likely be the key beneficiaries of any rise in demand.

·        Singapore’s share of Pakistan’s base oils imports rebounds in Q1 2024 after slumping in 2023.

·        Singapore’s market share rises mostly at the expense of South Korea.

·        Prospect of large rise in Singapore’s base oils production capacity in 2025 boosts attraction of increasing its share of supplies for markets like Pakistan.

·        Pakistan’s imports of Group II heavy-grade base oils continue to account for more than half its total imports in 2023 and Q1 2024.

·        Trend contrasts with India, where Group II heavy grades account for around 15% of its total imports during same period.

·        Trend magnifies importance of Pakistan as market for Group II heavy grades, even though its total imports are much smaller than India’s base oils imports.