Americas/EMEA base oils supply outlook: Week of 15 July

·        US base oils prices maintain firm premium to feedstock/competing fuel prices.

·        Firm premium sustains incentive for refiners to maintain or raise base oils output.

·        Tighter US supply during Q2 2024 shows signs of extending into early Q3 2024.

·        Tighter supply coincides with dip in US’ May base oils/lube exports to seven-month low, first year-on-year fall since July 2023.

·        Lower exports follow jump in US base oils export prices, closing arbitrage to multiple outlets.

·        Slowdown in shipments to outlets like Africa and India in May 2024 coincide with less workable arbitrage.

·        Lower exports, dip in arbitrage shipments and higher export prices point to tighter supply.

·        Tighter supply partly reflects impact of plant maintenance work, also points to steady-to-firm domestic demand.

·        Exports show signs of improving in June 2024 to key outlets of Europe and Latin America.

·        A pick-up in shipments would likely keep US supply balanced-to-tight heading into start of Q3 2024.

·        A pick-up in shipments could have reflected expectations of seasonal slowdown in domestic demand in months of July and August.

·        A pick-up in shipments preceded the recent hurricane that struck the US Gulf coast region in early July 2024.

·        A pick-up in shipments and stronger-than-expected domestic demand could leave US supply tighter than expected.

·        US base oils imports fall for thirteenth month in May 2024 on dip in shipments from Middle East, lower-than-usual supplies from Asia.

·        Drop in imports follows slump in US Group III prices relative to Group II prices and relative to prices in other regions.

·        US Group III base oils prices remain unusually weak relative to Group II prices and relative to prices in other regions.

·        Weak prices raise prospect of sustained drop in import volumes.

·        Slowdown in shipments from South Korea to US in June 2024 likely to trigger sharp fall in supplies from northeast Asia reaching the US in Aug 2024.

·        Lower imports and lower exports raise prospect of US domestic supplies accounting for larger share of rising domestic demand.

·        Trend would reflect US refiners’ focus on maximising sales  and tapping higher prices in country’s domestic market. 

·        Europe’s firm Group I prices relative to feedstock and competing fuel prices likely to sustain incentive for region’s refiners to maintain or raise output of the product.

·        Europe’s tighter Group I base oils supply has growing side-effects, from surge in shipments from Russia to Turkey, to more regular flows from US to Europe and from US to north Africa.

·        Europe’s Group II base oils supply shows signs of staying balanced-to-tight in Q2 2024 as slide in US exports to Europe in May 2024 coincides with expected recovery in region’s base oils output.

·        US exports to Europe show signs of recovering in June 2024, with several large shipments scheduled to reach Europe in July 2024.

·        Any pick-up in US supplies in July 2024 would likely coincide with steady regional output at a time when demand faces a seasonal slowdown.

·        Europe’s Group III base oils supply set to get boost from delivery of more shipments of Asia-Pacific origin during July 2024.

·        Supplies in Middle East could start to balance out amid signs of ongoing slowdown in shipments to the region from key sources like Asia.