Asia base oils demand outlook: Week of 9 Sept

·        Asia’s base oils demand could be more muted as sliding crude oil prices raise concern about exposure to drop in base oil prices.

·        Lube demand in markets like China and India faces seasonal pick-up in coming weeks, irrespective of crude oil prices.

·        Combination of firmer end-user consumption, balanced-to-tighter supplies and sliding crude prices complicate buyers’ procurement plans.

·        Balanced fundamentals could prompt buyers to secure sufficient volumes while avoiding stock-build.

·        Asia’s lube demand likely to see seasonal recovery in Sept 2024 from previous month, followed by slowdown that bottoms out in Dec 2024.

·        Lube demand could lag steeper drop in Asia’s base oils output this and next month, tightening surplus availability of supply.

·        Smaller surplus could limit pressure on refiners to adjust prices to clear the volumes.

·        Smaller surplus could support firmer demand for the more limited volumes.

·        Smaller surplus could support firmer demand for supplies from more distant markets, especially if prices in those markets become more competitive.  

·        China’s base oils demand shows signs of improving as Group I/II price premium mostly rises relative to diesel and to regional prices even as domestic supply rises in Aug 2024.

·        China’s domestic Group II light-grade premium to FOB NE Asia prices extends rise to highest since end-Jan 2024.

·        More feasible Group II arbitrage coincides with strong rise in China’s Group III base oils output in recent months, contrasting with lower Group II output.  

·        China’s domestic Group I light/heavy-neutrals price premium to FOB Asia prices rebounds in Sept 2024; heavy-neutrals premium climbs to highest in more than a year.

·        Group I premium rebounds ahead of closure of major Group I unit in China in Oct 2024.

·        Rising premium suggests that plant closure could trigger more demand for Group I supplies from Asia-Pacific region.

·        Any stronger-than-expected pick-up in demand from China could trim further the region’s supply surplus.

·        Thailand’s lube consumption extends rise in July 2024.

·        Rising consumption boosts signs of ongoing-demand growth in southeast Asia.

·        Demand in southeast Asia needs to stay strong to absorb the swathe of shipments that moved to the region early in Q3 2024.

·        Firm demand in southeast Asia also provides Singapore and South Korea with crucial and growing outlet for their base oils supplies.

·        Indonesia’s July base oils imports rise in July 2024 for fourth month in five from year-earlier levels.

·        Rise in shipments to southeast Asia’s largest importer supports sustained rise in shipments from Singapore and South Korea to the region so far this year.

·        Any slowdown in Indonesia’s base oils imports would be a drag on regional demand, highlighting importance for suppliers to develop other outlets.

·        Singapore’s base oils exports to southeast Asia dip over past four weeks as slowdown in shipments to Indonesia extends to other markets like Thailand and Malaysia.

·        Slowdown could reflect regional blenders’ healthy stocks after surge in Asia’s exports to southeast Asia earlier in Q3 2024.

·        Pakistan’s Group II heavy-grade base oils imports account for more than 60% of country's total imports in July 2024 for third month.

·        Group II heavy-grade’s large and rising share of imports contrasts with markets like India, where Group II heavy grades account for around 10-15% of total imports.

·        Large share magnifies importance of Pakistan as key outlet for overseas suppliers of Group II heavy grades.

·        Sustained pick-up in Pakistan’s Group II heavy-grade imports from US in three months to July 2024 point to rising competition for the market.  

·        India’s base oils demand could get support from signs of firmer-than-expected consumption and lower-than-expected stocks in Q3 2024.

·        India’s CFR Group II N150 premium to FOB NE Asia prices holds firm at highest since early Q2 2024.

·        Wider premium supports signs of tighter-than-expected supply-demand fundamentals.

·        Buyers’ inventories could be lower than usual after demand exceeded supply in July 2024 for fifth month.

·        India’s imports show signs of staying lower and demand firmer in Aug 2024.

·        Drop in crude oil prices complicates buyers’ procurement plans at a time when lube consumption faces seasonal pick-up in the coming months.

·        Any delays to moves to lock in supplies would coincide with likely slowdown in shipments from South Korea because of plant maintenance work.

·        Firm CFR India light-grade premium to FOB NE Asia prices contrasts with increasingly steep CFR India N500 discount to FOB NE Asia price.

·        Price discount keeps arbitrage shut, suggests buyers’ supplies of heavy neutrals remain sufficient for now.