South Korea’s June base oils output falls

South Korea’s base oils output fell in June to a 13-month low as refiners focused on maximizing diesel production.

The trend has replicated itself in several other countries as unusually strong diesel prices incentivized refiners to focus on producing more middle distillates.

The moves suggested that any significant or sustained weakness in base oils prices is triggering a response that is likely to limit the size of any build in surplus base oils supplies.

South Korea’s base oils output of 2.68mn bl (377,460t) in June fell by 6pc from 2.86mn bl the previous month to the lowest since May 2021, according to Korea Petroleum Association (KPA).

Output had held in a 2.81-3.32mn bl range throughout out the previous 12 months.

The drop in base oils output partly reflected lower refinery production, which fell by 5pc in June from the previous month. The country’s diesel and jet fuel production also fell in June from the previous month.

But diesel and jet fuel’s share of total refined products output rose in June for a fifth straight month to 39.8pc of the total. The share was the highest in nine months.

Base oils output as a share of refinery production fell to 2.74pc of the total in June. The share was down from 2.77pc the previous month and the lowest since January.

The lower output levels followed a fall in regional Group II base oil values to a steep discount to diesel prices in March and April. The prices are typically at a steep premium to diesel.

The fall in output coincided with a slump in South Korea’s base oils exports in June to a 25-month low.

The market impact of the drop in supplies was muted partly because of a sustained slowdown in Chinese demand.