Output rises to second-highest level in fifteen months, rises yoy for third month
High output keeps pressure on exports to stay at elevated levels
Seasonal slowdown in Asia and weakening margins could boost attraction of run-cuts
South Korea’s base oils output rose in October to its second-highest level in fifteen months, even as Asia’s base oils and lubricants markets entered a period of seasonal demand weakness.
Total production reached 2.78 million barrels (391,000 tonnes) in October, up from 2.67 million barrels the previous month and marking a third straight year-on-year increase, Korea Petroleum Association data showed.
The increase followed a prolonged stretch of reduced output earlier in the year.
Production had fallen in ten of the previous eleven months to July as multiple South Korean plants underwent maintenance-work.
The lower output added to Asia’s tighter-than-usual supply-demand balance, supporting unusually firm base oils margins through the first half of the year.
The strong recovery in output since July helped reverse that tightness.
The sustained pick-up in production in recent months eased earlier supply constraints and instead kept pressure on exports to remain elevated to avoid a build-up of surplus supplies.
Higher exports increased the importance of Asia’s base oils demand staying resilient enough to be able to absorb the additional volumes.
But demand across the region faced a seasonal slowdown during the winter months, limiting its ability to take on additional volumes.
Asia’s increasingly weaker base oils margins in recent weeks reflected that increasing strain and a growing mismatch between supply and demand.
Unusually firm diesel prices versus crude added to the squeeze on base oils economics, increasing refiners’ incentive to adjust output accordingly.
