Americas/EMEA base oils - week of Jan 15: Supply outlook

·        Size of US Group II base oils supply-surplus carried into start of 2024 could be more manageable following wave of exports in Q4 2023.

·        US export prices stay competitive, sustaining arbitrage opportunities to other regions.

·        Competitive export prices curb flow of Group II shipments to Americas from other regions.

·        US faces surge in Group III base oils supplies in late-2023 and start of this year.

·        US’ November Group III base oils imports rise for first time in seven months on surge in supplies from Mideast Gulf.

·        US’ rising imports from Mideast Gulf in Jan-Nov 2023 contrast with fall in total imports.

·        Trend leaves supplies from Mideast Gulf accounting for rising share of US Group III supply, and supplies from Asia accounting for shrinking share.

·        Trend suggests that US blenders are more comfortable using supplies that do not include all the OEM approvals that supplies have from some Asia refiners.

·        Trend suggests that price spread between supplies with OEM approvals and supplies with fewer OEM approvals is wide enough to incentivize blenders to use more lower-priced supplies.

·        Prospect of muted Chinese demand and possibility of weaker demand from India in 2024 puts pressure on Asia refiners to move more Group III supplies to US and Europe.

·        Group III supplies from South Korea to US already show signs of rebounding in last few weeks of 2023.

·        US’ November base oils exports rise to third-highest level on record.

·        Rise in shipments clears more surplus volumes from US market, curbing speed and size of supply-build at year-end.

·        A smaller supply surplus at start of 2024 would contrast with start of 2023, curbing pressure on prices.

·        Surge in exports in July-Nov 2023 coincides with increasingly competitive US export prices, contrasts with closed arbitrage to key outlets in 2H 2022.

·        Surge in exports highlights benefit/importance of competitive US prices especially at a time when domestic demand is weak.

·        Argentina’s November base oils supply rises to more typical levels following recovery in domestic output.

·        Argentina may need to rely even more on domestic output over coming months as currency depreciation increases cost of imports.

·        India takes delivery of unusual shipment of naphthenic base oils from Brazil in Dec 2023 despite Brazil’s lower base oils output in 2H 2023.

·        Europe’s Group I base oils supply surplus is sufficiently large for sale of export cargo this month at steeply discounted prices.

·        Surplus supply likely reflects firmer Group I base oils output in Italy at end-2023.

·        Size of supply-surplus likely to be more limited than at end-2022 after large shipment moved to Singapore at end-2023.

·        Europe’s Group II supply could get boost from signs of pick-up in shipments from US at end-2023.

·        Any rise in Europe’s Group II supply would coincide with regional Group II prices at highest premium to Group I prices since start of Q2 2023.

·        Europe’s Group II prices maintain steep premium to US prices, sustaining attraction of moving more supplies to Europe.

·        Europe’s Group III base oils supply gets boost from rebound in premium-grade shipments from Spain at end-2023.

·        Premium-grade shipments from Spain’s port of Cartagena rebound to five-month high in Dec 2023.

·        Recovery follows sharp slowdown in shipments from Spain in Oct and Nov 2023.

·        Supplies from Spain could become more important amid possibility of delays with shipments of premium-grade base oils from Mideast Gulf to Europe.

·        Supplies from Saudi Arabia and Spain to India or Asia-Pacific markets could face similar delays.

·        Europe’s October Group I base oils supply rises to six-month high, stays lower than in recent years.

·        Relatively steady Group I supply in recent months to Oct 2023 coincides with limited surplus volumes for export.

·        Trend suggests Europe’s demand for Group I base oils remains sufficient to absorb existing supplies during that period.

·        Trend suggests that any rise in Europe’s Group I supply from those levels could trigger pick-up in availability of spot shipments for export.

·        Trend suggests that any fall in Europe’s Group I supply from those levels could leave the market with insufficient volumes to cover requirements.

·        Europe’s October Group II supply falls to thirteen-month low.

·        Drop in supplies curbs prospect of large supply-build during Q4 2023, coincides with firmer Group II prices during that period.

·        Fall in Group II supplies likely to be temporary amid signs of rebound in supplies from US before year-end.