Americas/EMEA base oils supply outlook: Week of March 18

·        US base oil export prices stay unusually weak versus VGO prices.

·        Persistent supply surplus and low export prices point to limited moves by refiners to trim production rates.

·        Trend could reflect margins that are sufficiently firm for most products, with products like mid-viscosity grades cleared to market like India.

·        Persistent supply surplus maintains importance of high base oils exports to limit domestic supply-build.

·        US’ January base oils exports instead fall to thirteen-month low, at a time of year when domestic lube demand is typically weak.

·        Drop in exports could reflect possibility of unplanned fall in US base oils production in Jan 2024, when freezing weather disrupted crude oil production in the country. 

·        Base oils exports fall despite US export prices remaining unusually competitive relative to prices in overseas markets.

·        Drop in exports could also reflect moves by US refiners to redirect light-grade base oils into distillates pool.

·        Unusually weak US export prices relative to feedstock and competing fuel prices boosts attraction of such moves.

·        Signs of sustained slowdown in Mexico’s requirements for US base oils adds to attraction of such moves.

·        US’ January base oils imports fall for ninth month even as shipments from Mideast Gulf rise.

·        Supplies from Mideast Gulf account for rising share of US imports, suggesting weaker US demand has larger impact on supplies from Asia.

·        Even so, US imports from South Korea show signs of rebounding in Feb 2024.

·        Europe’s weak base oil values relative to feedstock and competing fuel prices curb incentive for region’s Group I refiners to increase output.

·        Weak margins point to sufficient supply and weak demand even as export availability tightens.

·        Any signs of tighter-than-expected supply or stronger-than-expected demand could prompt price reaction that reflects the firmer-than-expected fundamentals.

·        Europe’s Group II base oils supply could stay tighter as regional plant maintenance work coincides with slowdown in US shipments to Europe in early 2024.

·        Europe’s Group II base oils price premium to feedstock prices holds well below Jan 2024 levels and below year-earlier levels.

·        Lower premium curbs incentive for rise in region's base oils output, pointing to sufficient supply.

·        Steep premium of Europe Group II prices to US export prices keeps arbitrage open, pointing to insufficient supply.

·        Exports of premium-grade base oils from the Spain’s port of Cartagena rise in Feb 2024, with steady volumes moving to northwest Europe.

·        Slowdown in Group III shipments from UAE to Europe at end-2023 shows signs of extending into 2024 as more cargoes move to US and India.

·        Nigeria’s base oils supply shows signs of rising sharply in March 2024 as a wave of shipments arrive from US, Europe and Russia.

·        Slowdown in Saudi Arabia’s base oils exports shows signs of extending into March 2024.

·        Trend could boost demand for supplies from other markets, especially in outlets like Mideast Gulf and India.