Americas/EMEA base oils supply outlook: Week of 10 Feb

·         US domestic base oils prices stabilize at low level versus feedstock/competing fuel prices.

·         Low margins, and firm diesel premium to crude, continue to incentivize refiners to boost output of middle distillates rather than base oils.

·         Steady US spot prices and higher posted prices for some products point to more manageable surplus supply than this time a year earlier.

·         Size of surplus supply likely to dwindle in coming month as start of seasonal pick-up in demand coincides with plant maintenance work.

·         Surge in US base oils/lube exports to Mexico in Dec 2024 points to ongoing surplus to clear at year-end.

·         Drop in US base oils/lube exports to other markets suggests surge in flows to Mexico was sufficient to limit size of supply-build.

·         Rise in exports to Mexico and subsequent drop in shipments to other markets could have cushioned downward pressure on base oils spot prices.

·         Fall in total exports in Dec 2024 follows drop in US base oils output in Nov 2024.

·         Drop in output partly reflects impact of unscheduled production issues.

·         Drop in output also coincides with lower base oils margins and seasonal dip in overseas/domestic demand, incentivizing refiners to trim run-rates.

·         Any moves to trim run-rates in anticipation of seasonal fall in demand would point to more concerted moves to limit supply-build at year-end.

·         Either way, surplus of supply over demand stays at more manageable levels in Nov 2024.

·         Signs of slowdown in US base oils imports in Dec 2024 raise prospect of extending that dynamic to year-end.

·         Any further moves that leave US base oils output at lower-than-usual levels would cut supply further.

·         Such a scenario would leave supply-surplus at more manageable levels at start of 2025.

·         US base oils imports account for more than 70% of domestic supply in Nov 2024.

·         Trend suggests Group III base oils accounts for larger-than-usual share of domestic surplus at year-end, with Group II base oils accounting for lower-than-usual share.

·         Argentina’s base oils supply could be more balanced at start of 2025 following surge in exports in Q4 2024.

·         Pick-up in exports extends into 2025, tapping tighter global availability of Group I base oils.

·         Extended pick-up in exports into 2025 could coincide with recovery in Argentina’s domestic lube consumption.

·         Any recovery in consumption could trigger rise in demand for premium-grade supplies from overseas markets, rather than rise in demand for more Group I base oils.

·         Europe’s base oils supply shows signs of holding at more manageable levels for most grades, at time of year when weak demand often triggers build-up of surplus volumes.

·         Europe’s Group I base oils supply stays relatively low in Oct-Nov 2024, partly because of rebound in exports to markets outside Europe.

·         Lower supply limits size of supply-build at year-end, curbs pressure on refiners to adjust prices to levels that open arbitrage to markets like India.

·         Less volatile price activity, and more muted pressure to clear surplus volumes, could support earlier revival in demand.

·         Europe’s Group II base oils supply falls to seven-month low in Nov 2024.

·         Including unusual surge in Netherlands’ refinery consumption, Europe’s premium-grade base oils supply falls to lowest since mid-2022.

·         Drop in supply raises prospect of curbing size of surplus Group II base oils volumes carried over into start of this year.

·         Europe’s supply of Group III base oils with full set of OEM approvals could stay tighter than usual.

·         Spain’s Group III base oils exports rise to five-month high in Jan 2025.

·         Exports remain well below typical shipment volumes of close to 50,000 tonnes/month in first eight months of 2024, before plant maintenance work from end-Q3 2024.