Americas/EMEA base oils – week of May 22: Supply outlook

·        Diesel premium to crude steadies close to lowest since early 2022.

·        Lower diesel premium to crude incentivizes refiners to focus on more profitable products like base oils.

·        Global base oils supply falls sharply in February in Americas, Europe and Asia.

·        Fall in global supply coincides with rising demand, slashing surplus supply.

·        More balanced net supply coincides with rising global base oils values vs crude/diesel.

·        Global supply likely improved in March on recovery in Asia-Pacific base oils output especially.

·        Global supply likely to improve in US in Q2 following completion of plant maintenance work, stay lower in Europe and Asia as plant shutdowns cut output.

·        Rising US base oils imports in Q1 cushion impact of lower domestic output, complicate US refiners’ moves to clear surplus volumes.

·        Rising US base oils imports include increasingly steady flows from Netherlands, Saudi Arabia.

·        Rising supplies from those sources add to Group I, Group II base oils supply in US.

·        US supply surplus lingers in Q2 2023 even amid wave of arbitrage supplies to other markets.

·        Trend highlights repercussion of still weaker-than-usual domestic demand in US market.

·        Firm US base oils prices relative to crude and diesel add to domestic refiners’ incentive to produce more base oils, adding to oversupply. 

·        Europe’s base oils supply more balanced in Q2 2023 following swift removal of surplus volumes in Q1 2023.

·        Sharp fall in Europe’s surplus Group I supplies coincide with lower output and wave of arbitrage shipments, clearing large overhang.

·        More balanced supply in Q2 curbs pressure on refiners to adjust prices in response to lower feedstock costs.

·        Italy’s base oils output stays lower than usual in March, curbing any supply-build at the same time as regional demand improves.

·        Europe’s still-firm Group II prices relative to Asia shows signs of attracting more supplies to the region or to markets that Europe typically targets with supplies.

·        Trend would need to change when Europe has surplus supplies to clear.

·        Europe’s Group III base oils supply shows signs of rebounding in late Q1, easing in April, then improving in May as a wave of supplies from the Mideast Gulf reach the region.

·        Europe’s Group III base oils supply from Spain holds steady in 1H May, even with scheduled plant maintenance work.