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

·        US base oils prices trend lower relative to feedstock and competing fuel prices.

·        Lower margins and earlier fall in outright prices compared with H2 2023 could help to limit size of supply-build at year-end.

·        Lower prices facilitate higher export volumes and removal of surplus Group I and Group II base oils supplies through arbitrage shipments to markets like Africa.

·        Another cargo of US origin, likely of Group I base oils, is set to reach Nigeria in coming week after loading from US in H2 Oct 2024.

·        US base oils and lube exports stay at more elevated levels in Sept 2024 even as they fall from previous month.

·        Firm export volumes balance out impact of weak domestic demand, partially cushion impact of surge in imports to two-year high in Sept 2024.

·        Imports surge despite unusually weak US Group III prices relative to Europe and Asia.

·        High base oils imports raise prospect of leaving supply outpacing demand at end-Q3 2024.

·        Plant maintenance work in Oct 2024 should partially reverse that trend at start of Q4 2024.

·        Completion of plant maintenance work and signs of another wave of base oils imports in Nov 2024 put pressure on exports staying at elevated levels this month to limit supply-build.

·        Steady fall in US export prices in recent months facilitates prospect of higher shipment volumes.

·        Even so, seasonal slowdown in demand in key outlets like Latin America and Europe could deter buyers in those markets.

·        Latin America’s base oils supply could be more balanced at start of Q4 2024 after slump in US exports to the region in Sept 2024.

·        Any extension of that slowdown in shipments would help to limit likely supply-build in region in Q4 2024.

·        Brazil’s base oils market likely to begin Q4 2024 with larger stocks after country’s surplus of supply over demand jumps to eight-month high in Sept 2024.

·        Lack of plant maintenance work in Brazil in Q4 2024 would compound impact of any sustained rise in surplus supplies.

·        Country’s supply surplus instead likely to fall in Oct 2024 after US exports to Brazil fall to seventeen-month low in Sept 2024.

·        Lower surplus would spur earlier revival in demand ahead of likely pick-up in lube consumption in Q1 2025.

·        Europe’s Group I base oils supply surplus likely to be smaller in Q4 2024 than same time a year ago amid plant maintenance and drop in production capacity.

·        Italy’s Group I base oils output falls to ten-month low in Sept 2024, lags year-earlier levels for first time in four months.

·        Italy’s base oils output rose strongly in late 2023, boosting Europe’s surplus supply at year-end and in early 2024.

·        Lower production capacity this year likely to prevent repeat of that scenario in final months of 2024.

·        Any need for Europe refiners to clear surplus Group I supplies in export market faces signs of growing competition from other sources like US and Russia.

·        Wave of shipments set to reach Nigeria in Nov 2024 include Group I supplies from at least some of those sources.

·        Europe’s Group II base oils supply likely to remain readily available amid steady regional output and plentiful imports from US.

·        US base oils exports to Europe rise in Sept 2024 to second-highest level this year.

·        Jump in shipments likely to boost Europe’s Group II base oils supply at start of Q4 2024.

·        Europe’s Group II base oils price premium to US export prices widens further in recent weeks.

·        Widening premium sustains incentive for US suppliers to move more shipments to Europe.

·        Any such flows, in combination with firm regional base oils output, increase prospect of supply outpacing demand in Q4 2024.

·        Europe’s supply of Group III base oils with full set of OEM approvals could be tighter amid prolonged pause in shipments of premium-grade base oils from Spain to northwest Europe.

·        That pause shows signs of ending, with large cargo loading from Spain at start of this week.

·        Premium of Europe Group III 4cSt high price over Group III 4cSt low price widens to multi-year high in Nov 2024.

·        Widening price-gap points to tighter availability of Group III supplies with full set of OEM approvals and growing availability of other supplies.

·        Widening price gap adds to incentive for blenders to maximise consumption of base oils without full set of OEM approvals.

·        Prospect of recovery in supplies with full set of OEM approvals over coming weeks could put additional pressure on unusually wide price-gap.