India’s August base oils output recovers

India’s base oils output rose to a three-month high in August following the completion of plant maintenance work.

Base oils output of 101,410t in August rose from 79,380t the previous month and by 5pc from year-earlier levels, government data showed.

Output fell in July to a 13-month low because of the ongoing shutdown of a base oils unit for maintenance work that began in June.

Even with that slowdown, output of 809,000t in the first eight months of the year was up from 776,000t during the same period last year and the highest in more than a decade.

Firm base oils prices relative to retail diesel prices incentivized a swift recovery in production, even with a seasonal slowdown in domestic lube demand.

Domestic base oils prices are partly linked to regional prices, and are adjusted accordingly.

Domestic retail diesel prices have remained unchanged since May and lagged the rise in global crude oil prices even before then.

The trend squeezed the diesel premium to crude and incentivized refiners to boost output of products like base oils.

The dynamic contrasted with other markets where diesel prices have surged to unusually steep premiums to crude throughout most of this year.

The trend incentivized refiners in those markets to maximise production of middle distillates and to cut base oils output.

India’s base oils output as a share of refined products output recovered in August to a four-month high of 0.48pc of the total. It rose even as middle distillates’ share of total production also rose close to a three-year high.

India’s higher base oils production coincided with and helped to dampen the impact of a slowdown in the country’s base oils imports in August.

Sliding regional base oils prices in July and August also boosted the attraction for buyers to procure smaller volumes for more prompt delivery from domestic refiners.

The move cut their exposure to the possibility of even lower prices by the time they took delivery of the supplies.