S Korea’s Nov base oils output stays low

South Korea’s base oils output levels stayed unusually low in November as weak margins incentivized refiners to prioritise production of middle distillates instead.

Asia-Pacific base oils values improved relative to crude and diesel in late 2022. But they remained unusually weak and faced more pressure since crude and diesel prices recovered from mid-December.

The low margins are likely to continue to incentivize the country’s refiners to maintain low base oils production.

The move would come at a time of year when Asia-Pacific demand typically enjoys a seasonal boost and refiners in the region carry out plant maintenance work.

Regional demand is likely to get a further lift from a pick-up in economic activity in China following its removal of most Covid-related restrictions.

Current regional base oils prices reflect weak demand and plentiful supply. They have yet to reflect the prospect of tighter supplies and firmer demand.

The current price weakness could in turn magnify any supply tightness in the coming months as refiners respond by maintaining low run rates.

South Korea’s base oils output of 2.63mn bl (370,560t) in November edged up from 2.58mn bl the previous month, according to Korea Petroleum Association (KPA).

It was still the third-lowest volume in the past eighteen months. The lowest volumes during that time had been in September and October.

Output fell by 14pc in November from year-earlier levels and for a sixth straight month.

The slowdown contrasted with a 5pc rise in total refinery production and a 10pc increase in output of diesel and jet fuel.

Middle distillates output rose in November for a fourteenth straight month, highlighting the sustained strength of diesel values over the past year.

Base oils accounted for 2.56pc of South Korea’s total refined products output in November. The share was up from 2.55pc the previous month but down from more than 2.75pc in the first half of last year.