Americas/EMEA base oils - week of Nov 20: Supply outlook

·        US base oils supply likely to face upward pressure from firm margins for light grades, prospect of drop in shipments to Mexico and slowdown in flows to Brazil.

·        Arbitrage to move surplus US supplies to India stays hard to work without discounted prices.

·        Recent weakness of US export Group II heavy-grade prices points to more supply pressure on that segment of the market.

·        Firmer heavy-grade prices had partially compensated for previous weakness of light-grade prices.

·        Weaker heavy-grade margins and more limited outlets for the supplies could prompt refiners to adjust production accordingly.

·        US Group III price premium to Europe prices falls by more than $60/t over past month, remains much higher than in Jan-Sep 2023.

·        US’ firm Group III price premium to other regions continues to incentivize suppliers to target US with more Group III base oils.

·        Flow of supplies reaching US from South Korea shows signs of holding firm in Nov and Dec 2023.

·        Americas/Europe face prospect of more limited Group II arbitrage flows from Asia in Q4 2023 amid more balanced supplies in that region.

·        Prospect of more limited base oils flows from Asia curbs one source of pressure on Americas/Europe prices.

·        Americas' August base oils supply edges down from July 2023, rises yoy for first time in seven months.

·        Relatively steady supply contrasts with seasonal dip in Americas’ demand, triggering rise in surplus supply to thirteen-month high.

·        Rising surplus increases need for US refiners especially to maintain high exports to maintain balanced stocks.

·        US’ September base oils imports rise to five-month high on rebound in supplies from Mideast Gulf and Indonesia.

·        Rise in US’ Group III base oils supplies in Sept 2023 coincides with US auto-workers’ strike action that cut automobile production.

·        Industrial action compounds slowdown in demand for premium-grade base oils.

·        Rise in imports follows rebound in US Group III prices relative to prices in other regions.

·        US Group III prices remain more than $100/t higher than Europe prices, versus discount of around $100/t at start of Q3 2023, ICIS data shows.

·        US’ September base oils exports to Europe stay low.

·        Prolonged trend limits build-up of surplus premium-grade supplies in Europe.

·        Prolonged trend increases European blenders’ reliance on premium-grade supplies from within the region.

·        Prolonged trend coincides with tighter availability of Group I base oils in Europe.

·        Trend leaves blenders more exposed to any unexpected disruptions to normal supply flows.

·        Europe’s Group I export prices stay firm even as domestic prices fall and crude oil prices weaken.

·        Trend points to still-limited surplus supply of Group I base oils.

·        Europe’s still-low Group II base oils values versus gasoil and VGO could deter refiners from boosting supply in the region.

·        Shipments reaching Europe from US in Nov-Dec 2023 show signs of staying lower than usual.

·        Shipments reaching Europe from Mideast Gulf in Nov-Dec 2023 show signs of staying lower.

·        Any such slowdown would coincide with relatively lower shipment volumes from Spain so far in Nov 2023.

·        Extension of such a dynamic would curb volume of Group III supplies in the region.

·        Europe’s Group III base oils supply climbs in Sept 2023 to six-month high.

·        Europe’s supply rises as pick-up in shipments from Spain and Asia counter slowdown in imports from Mideast Gulf.

·        Supply rises even in the face of falling Europe Group III base oils prices versus other regions and versus diesel.

·        Rising supply points to persistent surplus availability in global market, raises prospect of further pressure on Group III prices.

·        Europe’s base oils exports to non-EU markets fall sharply in Q2-Q3 2023 yoy.

·        Drop in shipments coincides with firm Group I prices that keep arbitrage shut.

·        Drop in shipments coincides with falling regional lube demand in Europe.

·        Trend points to sharp drop in structural supply because of plant shutdowns and run-cuts.

·        Europe’s September base oils exports include largest shipment to Singapore in more than two years.

·        Such flows to southeast Asia could become more regular over the coming months to balance out loss of supplies from Japan.