Asia base oils demand outlook: Week of 10 March

·         Asia’s base oils demand could be steadier, with blenders likely to have already secured supplies required to cover seasonal pick-up in demand over coming weeks.

·         Recent moves to replenish stocks added to demand and tightened supply.

·         Demand could ease following completion of those moves.

·         For buyers with sufficient supplies, falling crude oil prices add to incentive to hold back.

·         Falling crude prices, rising base oils margins and any signs of supply-demand fundamentals balancing out would raise concern about exposure to price adjustments.

·         Any such concerns would add to preference to hold back. 

·         Narrow gap between FOB Asia prices and prices in destination markets like China and India continues to complicate arbitrage to those markets.

·         Less feasible arbitrage suggests buyers would have to raise bids if they need to secure replenishment supplies.

·         Persistence of narrow gap between FOB Asia prices and CFR India and CFR Northeast Asia prices suggests buyers have sufficient supplies to avoid need to raise bids.

·         Discount of US export prices widens vs prices in markets like India.

·         Wider discount facilitates arbitrage shipments from US.

·         Wider discount incentivizes buyers to hold back until they are confident that any further drop in US export prices has been completed. 

·         China’s base oils imports would need to rise strongly in Jan-Feb 2025 to make up for drop in domestic base oils output in first two months of 2025.

·         China’s domestic Group II N150/N500 price premium to FOB Asia prices trends lower so far this year.

·         China’s domestic Group I brightstock premium to FOB Asia price stays well below year-earlier levels at a time of year when it usually peaks.

·         Lower price premium complicate arbitrage, pointing to muted interest in lining up additional supplies from overseas markets.

·         China’s lower output and lower price premium to FOB Asia prices point to lower demand in Jan-Feb 2025 compared with year-earlier levels.

·         Singapore’s base oils exports to southeast Asia surge in past week to highest since end-2023.

·         Rise in shipments lifts total exports to southeast Asia over past four weeks to highest in more than three years.

·         Rise in shipments enables buyers to replenish stocks ahead of seasonal rise in demand.

·         Rise in shipments helps to cover for drop in supplies from other sources like South Korea.

·         Japan’s domestic base oils and lube demand rises in Jan 2025 for second month from year-earlier levels.

·         Any extension of pick-up in consumption could limit Japan’s surplus base oils supplies and any further recovery in country’s exports.

·         Dynamic would leave buyers in southeast Asia especially increasing their reliance on additional Group I supplies from more distant markets.

·         India’s CFR Group II base oils price premium to FOB Asia prices stays narrow, with N150 premium narrowing further.

·         Narrow premium cuts attraction of moving more supplies to India.

·         Narrow premium points to muted buying interest even amid signs of firm domestic lube consumption.

·         Narrow premium suggests buyers have secured sufficient supplies to cover requirements, especially in view of likely seasonal drop in lube consumption in month of April.

·         Narrow premium to FOB Asia prices contrasts with widening CFR India Group II premium to US export prices.

·         Contrasting dynamics point to availability of supplies from other sources.

·         Narrow CFR India premium to FOB Asia prices contrasts with widening FOB Asia Group II price premium to Singapore gasoil prices, which points to tightening supply-demand fundamentals.

·         Contrasting price trends suggest that supply is tighter than expected, or that demand is weaker than expected.

·         Contrasting trends suggest that one of the price trends will have to adjust accordingly.

·         Any signs that supply-demand fundamentals are steadier or improving, rather than tightening further, would add to buyers’ preference to hold back in anticipation of adjustment in base oils prices.