S Korea July base oils output stays low

South Korea’s base oils output stayed lower than usual in July in the face of falling prices and weaker regional demand.

Base oils output of 2.72mn bl (383,000t) in July edged up by 1pc from the previous month even as refined products output rose by 13pc, according to Korea Petroleum Association (KPA).

The July base oils volume also fell from year-earlier levels for a second month, dipping by 18pc. Refined products output rose for a tenth straight month, by 10pc.

The diverging trends cut base oils’ share of refinery production to less than 2.5pc of the total in July.

The share was down from an already low 2.7pc in June and the lowest in 15 months.

It was lower than levels earlier this year when some scheduled plant maintenance work cut production. No such maintenance work had been scheduled in July.

Base oils output had previously held above the 2.81mn bl level for twelve straight months to May.

It had held above 3mn bl/month during most of the second half of last year. Production had exceeded 3pc of total refined products output during that period.

Prices and margins had been unusually high during most of that time.

The lower production levels this year reflected the impact of lower prices relative to crude and diesel, and much higher middle distillates prices relative to crude.

Regional base oils prices fell sharply in July and August in response to persistently weak demand in China and a seasonal slowdown in consumption in markets like India and Thailand during the monsoon season.

The lower prices squeezed further their differential to crude and diesel.

The price signals incentivized refiners to maximise production of diesel and jet fuel.

South Korea’s middle distillates output as a share of refinery production rose to more than 41pc of the total in July. The share rose from an already high 40pc in June to the highest in 10 months.

Lower base oils output cut the volume available for export from the Asia-Pacific region’s largest source of Group II and Group III base oils.