Americas/EMEA base oils - week of Dec 18: Supply outlook

·        Americas/Europe base oils supply could get support from firm margins that incentivize refiners to maintain or increase output.

·        US Group II domestic prices stay firm vs export prices, curbing pressure on refiners to adjust output.

·        Steady or higher supply would coincide with seasonal slowdown in demand.

·        Size of any supply overhang in early 2024 likely to impact prices and timing of revival in demand as buyers wait until any price adjustment has ended.

·        Lower US export prices raise prospect of curbing any additional flows from Asia-Pacific to the Americas region.

·        US Group III base oils supply-demand fundamentals could improve over the coming months as sustained slowdown in imports coincides with sliding Group III price premium to VGO.

·        US Group III premium to Group II base oils also narrows, cutting incentive for refiners to produce Group III base oils instead of Group II.

·        But Group III premium to Group II stays wider than in recent years, curbing the urgency of such a move.

·        US also faces prospect of arrival of swathe of Group III shipments from Asia in Dec 2023 amid signs arrival of some cargoes was delayed from Nov 2023.

·        Americas’ base oils output falls more steeply than regional demand in Sept 2023.

·        Trend, combined with sustained rise in US base oils exports, limits regional supply-build heading into Q4 2023.

·        US October base oils exports to Europe fall close to lowest level in eight months, extend trend of sliding flows to the region.

·        Sustained slowdown in shipments from US curbs build-up of surplus supplies in Europe.

·        Slowdown in shipments leaves Europe facing growing reliance on Group II base oils supplies originating from within the region.

·        Europe Group II premium to US domestic/export prices widens sharply in Q4 2023.

·        Trend boosts incentive for US refiners to move more supplies to Europe.

·        Europe’s Group II premium to fob Asia prices stays wider vs Q3 2023, but well below typical levels in 2021-2022.

·        Trend continues to curb prospect of repeat of wave of shipments from Asia to Europe/Africa in Q4 2022.

·        Trend adds further to Europe’s reliance on regional supplies to cover Group II requirements.

·        Spain’s exports of premium-grade base oils falls in Nov 2023 to two-year low.

·        Fall in supplies adds to contrasting fundamentals between relatively tighter availability of Group III supplies with OEM approvals and more plentiful availability of supplies with limited or no OEM approvals.

·        Widening premium of Europe’s Group III prices for supplies with OEM approvals over prices for supplies with limited approvals boosts incentive for blenders to use more lower-priced supplies instead.

·        Any subsequent slowdown in demand would coincide with signs of improving availability of OEM supplies in Dec 2023.

·        Trend could put pressure on prices for supplies with OEM approvals.

·        South Africa’s October base oils imports rise to highest in more than nine years.

·        Imports surge on resumption of flows from Netherlands.

·        Imports get further boost from arrival of large volumes from US, Saudi Arabia and Belgium.

·        Shipments from US surge from year-earlier levels, highlighting South Africa’s growing importance as outlet for US supplies.

·        Shipments from Saudi Arabia extend increasingly regular flow since Q2 2022.

·        Shipments from Belgium surge since July 2023, pointing to addition of new supplies.

·        Rise in flows from growing number of sources highlights South Africa’s total reliance on imports to cover its requirements.

·        Rise in flows highlights ready availability from those sources and the importance of South Africa as an outlet for the supplies.