Asia base oils supply outlook: Week of 17 Feb

·         Asia’s base oils prices hold firm vs feedstock/competing fuel prices.

·         Asia’s firm base oils price differentials vs gasoil/VGO point to tight supply-demand fundamentals, incentivize refiners to maximise output and exports, especially of heavy grades.

·         Supply likely to stay tighter, even with firmer margins, as round of plant maintenance gathers pace and coincides with seasonal rise in demand.

·         Asia Group II heavy-grade base oils price premium to Group I SN 500 extends rise in Feb 2025 to highest since Q4 2021.

·         Group II heavy-grade premium typically gyrates more and in narrower range as higher premium incentivizes switch to Group I base oils.

·         Extended rise in Group II heavy-grade premium points to breakdown of that pattern, exacerbating supply tightness.

·         Asia's firm base oils prices keep shut the arbitrage to move regional supplies to other more distant markets.

·         Firm prices could facilitate more arbitrage shipments to Asia-Pacific region.

·         Steady-to-higher prices and signs of more limited surplus supply in other key markets like US and Europe complicate any such shipments.

·         Dynamic puts onus on regional buyers to raise prices to make arbitrage more feasible.

·         Such a scenario shows signs of materializing in India, whose imported price premium to US export prices rises to widest since May 2024.

·         South Korea’s base oils exports could tighten further ahead of and during round of scheduled plant maintenance work starting at end-Feb 2025.

·         Any tightness would follow signs that slowdown in South Korea’s base oils exports at end-2024 extended into early 2025.

·         South Korea’s tighter supply forces buyers to rely more on other regional refiners instead.

·         Base oils exports from other key regional suppliers like Taiwan and Singapore show signs of rising strongly so far in Feb 2025.

·         Taiwan’s base oils shipment surge so far in Feb 2025, with export volumes already close to total exports in all of Jan 2025.

·         Taiwan's exports of Group II heavy grades stay higher than usual so far in Feb 2025 for a second month.

·         Taiwan’s Group II heavy grades account for more than 60% of its base oils exports in Jan 2025.

·         Heavy-grade share of exports rises from less than 40% in Dec 2024 to highest in almost two years.

·         Taiwan’s rising share of heavy-grade exports taps Asia’s tight availability and high price of Group II N500.

·         Singapore’s base oils exports rebound strongly in H1 Feb 2025.

·         Rebound is insufficient to balance out slump in shipments in H2 Jan 2025, leaving exports over last four weeks at their lowest in more than a year.

·         Any extension of rebound in Singapore's exports over coming weeks would be timely, helping to cushion impact of widespread round of plant maintenance in Asia.

·         Global base oils supply falls to seven-month low in Nov 2024.

·         Supply falls as dip in output in Americas and Europe outweighs higher supply in Asia.

·         Dip in output in Americas and Europe curbs size of supply-build in Q4 2024, cuts arbitrage flows to Asia for delivery early this year.

·         Dynamic increases regional blenders’ reliance on Asia-Pacific suppliers to replenish stocks/cover requirements in early 2025.