Asia base oils demand outlook: Week of 7 July

·         Asia’s base oils demand could weaken in coming weeks amid seasonal slowdown in consumption.

·         Signs of more prolonged and widespread drop in regional lube consumption from year-earlier levels would magnify impact of seasonal slowdown.

·         Weaker demand in recent months cushions impact of tighter regional supply during that period.

·         Weaker demand in coming weeks could magnify impact of recovery in regional supply.

·         Demand could conversely get some support as buyers start to eye seasonal rise in demand in final weeks of third quarter.

·         Buyers would likely target supplies for delivery in late-August or early-September to cover that expected rise in demand.

·         Firmer price differentials for some base oils grades in China and India point to pockets of ongoing or stronger buying interest for those supplies.

·         China’s domestic price-premium for imported Group II light-grade base oils over prices for domestic supplies extends rise to highest in a year.

·         Widening price-premium for imported base oils contrasts with still-lower N150 premium to diesel for domestic supplies.

·         Dynamic points to weak fundamentals for supplies from domestic sources, and increasingly strong fundamentals for supplies from overseas sources.

·         Weaker demand for domestic supplies coincides with likely rise in domestic base oils production following completion of most plant-maintenance work in China.

·         Firmer domestic prices for imported supplies widens sharply their premium to FOB Asia cargo prices.

·         Wider premium makes arbitrage more feasible, despite weak fundamentals for domestic supplies.

·         Wider price-premium for imported supplies follows dip in shipments from Taiwan to China in recent months, and more recent slowdown in shipments from Singapore to China.

·         Singapore’s base oils exports over last four weeks fall more sharply to China than to southeast Asia or India, reflecting that dynamic.

·         Any extension of that trend could leave China with tighter availability of supplies for term buyers especially.

·         Slowdown in southeast Asia’s demand would reflect more the impact of a seasonal dip in requirements rather than the kind of rise in supply that China faces following plant-maintenance work.

·         Thailand’s lube demand falls in May 2025 for third month from year-earlier levels.

·         Drop in lube demand coincides with expectations of weaker economic growth and exports following US’ import-tariff announcement in April 2025.

·         Size of US tariffs on imports from Thailand could get more clarity over coming week.

·         Other key markets in southeast Asia likely to see similar dip in lube consumption for similar reasons.

·         Japan’s base oils/lube demand falls in May 2025 for fourth month from year-earlier levels.

·         Falling base oils/lube consumption coincides with Japan’s weaker automobile production and shrinking exports.

·         Dynamic highlights impact of US tariffs and uncertainty about additional tariffs.

·         Lower demand cushions impact of fall in Japan’s base oils output, mirroring similar trend in Asia.

·         Trend suggests Asia’s base oils prices and margins could have been even higher than they were in H1 2025 if demand had held steadier or rose, compounding regional supply-tightness.

·         Concern about US tariffs and subsequent slowdown in economic activity inadvertently helps to curb such a scenario.

·         Any extension of demand-weakness in regional markets like Japan could by contrast compound impact of expected pick-up in supply in coming months.

·         Scenario boosts importance of revival in regional demand to balance out pick-up in supply.

·         India’s CFR Group I base oil price-discount to Group II prices narrows, especially for light-grade supplies.

·         Narrower Group I discount to Group II coincides with widening CFR India Group I base oil premium to FOB Asia cargo prices.

·         Dynamic points to firmer fundamentals for India Group I base oils relative to other grades and other regions.

·         India’s CFR Group II heavy-grade base oils price-premium to FOB Asia cargo price holds unusually firm, especially vs year-earlier levels.

·         Price-premium holds firm even as demand faces prospect of seasonal slowdown this and next month that would compound any further year-on-year drop in consumption.

·         Firm CFR India price-premium to FOB Asia prices through Q2 2025 coincides with high import volumes that balance out lower domestic output.

·         Weaker domestic demand cushions further the impact of lower output.

·         India’s base oils supply matches demand in May 2025, reflecting that dynamic.

·         Weaker demand and likely rise in domestic base oils output in early-Q3 2025 curb urgency to attract additional supplies from overseas markets.

·         Firm CFR India price-premium instead sustains attraction of moving more shipments to India.

·         Dynamic could suggest there are other factors supporting ongoing buying interest for overseas supplies.

·         Those factors could include moves to secure shipments for delivery in late-Q3 2025, or concern about drop in flows of heavy-grade shipments from Middle East.

·         Without any such factors, incentive to move more shipments to India raises prospect of pick-up in surplus-supply.