Americas/EMEA base oils supply outlook: Week of 20 Jan

·         US base oils prices extend fall versus feedstock/competing fuel prices.

·         Lower margins, and higher diesel premium to crude oil, boost incentive for refiners to produce more motor fuels instead of base oils.

·         Supply could also face pressure from cold weather in early 2025.

·         Freezing weather in US Gulf coast area impacted US refinery run-rates in early 2024.

·         Lack of price response to falling base oils margins points to still-weak supply-demand fundamentals.

·         Weak fundamentals keep pressure on refiners to maintain high exports.

·         Any upward adjustment in export prices relative to domestic prices would point to signs of easing surplus.

·         Refiners’ more limited ability to influence US base oils imports adds to importance of exports to manage supply balance.

·         US base oils imports shows signs of falling in Dec 2024 before rising again in Jan 2025.

·         Base oils imports in Jan 2025 so far show signs of exceeding typical volumes but lagging surge in shipments in Sept 2024 and Nov 2024.

·         Lower imports would curb upward pressure from overseas shipments on US base oils supplies at start of the year.

·         South Korea’s base oils exports to US fall to six-month low in Dec 2024.

·         Drop in shipments adds to signs of more muted impact of US imports on country’s domestic supply early this year.

·         Lower imports early this year would help cushion against impact of rise in base oils imports in Nov 2024 to second-highest level in more than two years.

·         Surge in imports in H2 2024 partially reverses impact of rise in US base oils exports, raising prospect of larger supply-build at year-end.

·         Imports surge despite weak domestic US Group III prices and seasonal slowdown in demand.

·         Surge in imports, despite unattractive fundamentals and prices, highlights US refiners’ more limited leverage over that aspect of US base oils supply.

·         Dynamic could incentivize US refiners to trim output of Group III base oils, whose production they have more control over.

·         Rise in imports in H2 2024 raises prospect of US market starting 2025 with Group III base oils accounting for larger-than usual share of domestic supply, and Group II base oils accounting for lower than usual share.

·         Dynamic could add to incentive for US refiners to focus on producing more Group II base oils instead of Group III base oils.

·         Any resumption of normal shipping flows via Suez Canal would speed up base oils shipments from Asia and Middle East to Europe and US.

·         Scenario would have largest benefit on Group III base oils shipments from Asia and Middle East.

·         Scenario would also facilitate shipments from Europe to markets like East Africa and Asia.

·         Europe’s Group I base oils supply surplus shows signs of staying tighter than usual for time of year.

·         Italy’s base oils output recovers in Nov 2024, cushioning impact of impact of plant maintenance in Spain in Nov-Dec 2024.

·         Italy’s base oils stocks still fall in Nov 2024 for fifteenth month from year-earlier levels.

·         Lower stocks curb need to clear surplus volumes.

·         Another large cargo of Group I base oils moves from northwest Europe to southeast Asia in H1 Jan 2025, adding to several other shipments from Europe in late-2024.

·         Shipments tighten supply further.

·         Europe’s Group II base oils market could face smaller surplus at start of this year after region’s imports fall to nine-month low in Nov 2024.

·         Drop in shipments from overseas markets leaves Europe more reliant on supplies from regional sources.

·         Europe’s Group III base oils supply likely to be readily available at start of this year after surge in supply in Nov 2024.

·         Supply rises in Nov 2024 despite plant maintenance work in Spain that month.

·         Supply likely to last longer than usual amid seasonal slowdown in base oils and lube demand at year-end.

·         Supply of premium-grade base oils from Spain to northwest Europe stays lower than usual so far in Jan 2025, extending drop in supply throughout Q4 2024.

·         Dynamic points to healthy availability of supplies with some OEM approvals, and still-tighter availability of supplies with full set of approvals.