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

·        US base oils premium to feedstock/competing fuel prices holds firm, contrasting with ongoing weakness of diesel premium to crude.

·        Trend sustains attraction for US refiners to maintain or raise base oils output.

·        US Group II light-grade prices stay firmer than usual relative to other grades and relative to prices in other regions.

·        Price-strength points to still-tighter availability of Group II light grades relative to other grades.

·        Firm margins and more limited arbitrage opportunities raise prospect of triggering rise in surplus supplies of Group II mid- and heavy-viscosity grades in the meantime, and of light grades when supply returns to normal.

·        US Group III base oils supply from overseas sources could tighten in response to lower prices and recent plant maintenance in South Korea.

·        South Korea’s April base oils exports to US fall to lowest since May 2020, when pandemic-related lockdowns slashed US demand.

·        Arrival of South Korean shipments in US in May 2024 show signs of staying low, reflecting slowdown in exports.

·        US Group III base oils supply from domestic sources could face downward pressure as narrowing Group III premium to Group II prices curbs incentive to produce Group III base oils.

·        Firmer demand for Group III base oils than Group II base oils could deter any such moves.

·        Large share of surplus US base oils/lube supplies in Q1 2024 moves to small number of outlets like Mexico and Israel.

·        US engine oils exports by contrast continue to account for small share of total base oils/lube shipments bound for markets like Europe.

·        Trend suggests US refiners seek to minimize impact of oversupply on key markets like Europe.

·        Trend suggests only limited number of outlets are in a position to absorb large volumes of surplus supplies.

·        US base oils exports to Europe recover in March 2024, with arrival of shipments likely coinciding with completion of Group II plant maintenance work in Netherlands in early Q2 2024.

·        Prospect of subsequent rise in Europe’s Group II base oils supply in Q2 2024 contrasts with slump in supply in Q1 2024.

·        Rise in Europe's Group II supply in Q2 2024 contrasts with drop in region’s Group I base oils supply.

·        Contrasting trends boost attraction for regional blenders to use more Group II base oils in their formulations.

·        Europe’s dwindling number of Group I units compounds impact of planned or unexpected changes in supply at any of its remaining units.

·        Europe’s dwindling domestic Group I base oils supply boosts opportunity for plants in markets like central Asia and Middle East to boost shipments to Europe.

·        Europe’s Group I domestic brightstock price-premium to SN 500 rises to three-month high; its discount to brightstock export prices narrows.

·        Relative strength of Group I brightstock price suggests recent/ongoing plant shutdowns in Europe are having a larger impact on supply of that grade.

·        Relative strength of Group I brightstock price suggests blenders face more difficulty finding a substitute for the grade.

·        Italy’s March Group I base oils output falls year-on-year for second time in three months amid plant closure.

·        Lower output highlights sustained structural drop in Europe’s Group I supply.

·        Italy’s base oils exports fall more than 20% in Q1 2024, outpacing the drop in output and contrasting with rise in imports.

·        Trend suggests the country's drop in supply caused by the plant closure is likely to impact the Group I export market more than its domestic market.

·        Closure of Group I unit also boosts Italy’s reliance on overseas base oils supplies to cover more of its requirements.

·        Europe’s Group III base oils supply shows signs of improving in Q2 2024 even with ongoing plant maintenance work in the region.

·        Europe’s Group III prices stay firm vs US prices, sustaining attraction of moving more shipments to Europe.

·        Europe remains Turkey’s largest base oils supplier in Q1 2024 even amid rising share of supplies from Russia.

·        Trend partly reflects Turkey’s rising imports of premium-grade base oils.

·        Turkey’s imports of premium-grade base oils rise in Q1 2024 year-on-year for fourth straight quarter, contrasting with fall in imports of Group I base oils for second straight quarter.

·        Turkey’s imports of premium-grade base oils typically account for close to half its total imports.

·        Premium-grade supplies from Europe account for more than 40% of Turkey’s premium-grade imports in March 2024.

·        Trend highlights ongoing importance of Turkey as key market for European supplies and of Europe as key source of Turkey’s premium-grade supplies.

·        Europe’s combined Group I, Group II and Group III base oils supply falls to multi-year low in Feb 2024 amid lower-than-usual availability of all the grades.

·        Group III base oils accounts for a larger share of Europe’s base oils supply in Feb 2024 after supply rises from Jan 2024.

·        Group I and Group II base oils’ share falls in Feb 2024 as supply falls from Jan 2024.

·        Lower supply cushions impact of seasonally-weak demand in Europe in Q1 2024.