Americas/EMEA base oils - week of Dec 11: Supply outlook

·        Americas’ base oils supply surplus could stay lower than usual at year-end.

·        Plant maintenance in Q4 2023 cuts supply in several regional markets.

·        Competitive US export prices support ongoing flow of arbitrage shipments.

·        Trend contrasts with US export prices in Q4 2022 that kept shut the arbitrage to key outlets.

·        Firm US domestic prices curb incentive for refiners to trim output.

·        Refiners’ growing focus on export markets could in turn limit impact of firm domestic prices on production decisions.

·        US’ September base oils/lube supply lags demand for fourth time in five months.

·        Supply shortfall curbs supply-build ahead of Q4 2023, when demand faces seasonal slowdown.

·        Supply shortfall highlights importance of high export volumes to maintain relative supply-demand balance.

·        Brazil’s October base oils supply rises to one-year high on surge in imports.

·        Higher supply outweighs demand, triggering rise in surplus to one-year high.

·        Large surplus could curb Brazil’s requirements for additional volumes through rest of Q4 2023.

·        Brazil’s requirements for overseas supplies are anyway likely to ease following scheduled completion of plant maintenance in Q4 2023.

·        Any build-up of surplus volumes in Q4 2023 could compound subsequent slowdown in requirements.

·        Any such slowdown would coincide with seasonal dip in US’ domestic demand and prospect of slowdown in shipments to Mexico.

·        Argentina’s October base oils supply falls to three-year low on drop in imports, pause in domestic production.

·        Lower supply contrasts with steady domestic lube demand.

·        Disconnect between supply and demand raises prospect of pick-up in requirements for overseas supplies at least through rest of Q4 2023.

·        US suppliers likely to be key beneficiaries of any pick-up in demand for overseas supplies as closed arbitrage from Asia slashes shipments from that region to Argentina since Q2 2023.

·        Europe’s Group I base oils supply shows signs of staying tighter than usual for time of year.

·        Signs of pick-up in flows of Group I base oils from Europe to Asia could curb any supply-build at year-end.

·        Europe’s Group II supply could get a boost as widening price premium to US/Asia prices boosts attraction of moving more arbitrage shipments to Europe.

·        Europe’s Group III supply faces slowdown in shipments from Spain in recent weeks, before pick-up in flows last week.

·        Rise in Group III shipments from UAE to Asia in recent weeks shows signs of curbing volumes bound for Europe.

·        Europe’s base oils supply holds steady in Q3 2023 vs Q2 2023, falls 9pc yoy.

·        Steady supply in Q3 2023 vs Q2 2023 contrasts with typical rise in supply in Q3 from Q2.

·        Steady supply counters impact of seasonal slowdown in regional lube demand in Q3 2023.

·        Steady supply limits size of supply-build in Q3 2023, especially vs year-earlier levels.   

·        Europe’s Group II or Group III base oils account for largest share of Europe’s base oils market every month since June 2023.

·        Before June 2023, Europe’s Group I base oils almost always accounted for largest share of Europe’s base oils market.

·        Trend highlights structural change in Europe’s base oils market.

·        Sustained fall in Group I supply in in 2022 and 2023 and improving availability of Group II/III base oils incentivizes blenders to switch to premium-grade base oils to ensure security of supply.

·        Europe’s Group III base oils supply accounts for largest share of Europe’s base oils market in Sept 2023 for second time in four months.

·        Rising Group III base oils supply and market share coincides with sustained pressure on Group III prices.

·        Trend suggests rise in supply outweighs demand, contrasts with steadier-to-firmer Group II prices.