Americas/EMEA base oils - week of Jan 22: Supply outlook

·        US base oils supply likely to get support from light round of plant maintenance work so far in 1H 2024 and from firm domestic prices.

·        Freezing weather in US shows signs of having more limited impact on refinery production, contrasting with prolonged weather-related disruptions in Q1 2021.

·        Lower, but still firm US domestic prices vs heating oil/VGO curb incentive for refiners to cut production.

·        Firm domestic prices vs VGO and vs export prices incentivize refiners to maximise supplies for domestic market.

·        Incentive to focus on domestic market coincides with seasonal slowdown in domestic demand, raising prospect of supply-build.

·        Competitive US export prices sustain feasibility of moving surplus supplies to markets like Latin America.

·        US suppliers faces structural drop in shipments to Mexico and likely slowdown in demand from Brazil.

·        Any slowdown in Latin America’s demand for US shipments would put pressure on suppliers to move shipments to other markets.

·        Several US shipments load in past month bound for Nigeria and India, with more supplies being offered.

·        US Group III base oils supply likely to stay plentiful for now.

·        US Group III prices maintain firm premium to Europe prices, sustaining incentive for overseas refiners to prioritise US market.

·        South Korea’s December base oils exports to US surge to fifteen-month high.

·        Rebound in shipments contrasts with steadier flows to Europe.

·        Rise in shipments set to add to US Group III supply in early 2024.

·        Shipments from Asia to US likely to slow down later in Q1 2024 as scheduled plant maintenance cuts supply.

·        Shipments from South Korea to US show signs of slowing sharply so far in Jan 2024.

·        Rise in US base oils imports from UAE in Nov 2023 shows signs of continuing over the following months.

·        Rise in shipments to US contrasts with signs of ongoing slowdown in UAE shipments to Europe.

·        Trend would add to premium-grade supplies in US in early 2024.

·        South Korea’s base oils exports to Latin America fall in 2H 2023 to lowest for that period in four years.

·        Slowdown in exports contrasts with surge in shipments to Latin America in 2H 2022.

·        Slowdown reflects smaller surplus in Asia and less attractive arbitrage amid more competitive US prices.

·        Slowdown boosts demand for supplies from US, provides that market with larger outlet to clear surplus volumes.  

·        US’ November base oils exports to Europe surge to record-high.

·        Rise in shipments removes swathe of supplies from US market, transfers them to Europe, where Group II supply was tighter.

·        Removal of supplies from US market could help limit size of supply-build at end-2023.

·        Surge in US exports to Europe curbs pressure to line up shipments to other outlets instead.

·        India’s December base oils imports from US fall amid slowdown in arbitrage shipments reaching the country.

·        Trend points to focus of US supplies targeting Europe, where Group II prices are at a steep premium to other regions.

·        Opportunity to move large volumes to Europe likely to be sporadic in coming months, raising prospect of reversion to outlets like India to clear surplus volumes.

·        Europe’s Group I base oils supply surplus likely to be more limited than year-earlier levels.

·        Weak Group I export premium to feedstock/competing fuel prices incentivizes refiners to trim surplus output.

·        Europe’s Group II supply set to get boost from arrival of wave of shipments from US in Jan 2024.

·        Europe’s Group III supply could face tighter availability amid signs of drop in supplies in Q4 2023, signs of drop in volumes from Mideast Gulf early this year, and longer travel times for shipments from Asia/Mideast Gulf.

·        Europe’s Group III prices rise vs Group II prices for first time since mid-2023.

·        Steadier Group III premium vs Group II follows sustained slide since start of Q2 2023.

·        Europe’s November Group III base oils supply falls to thirteen-month low.

·        Drop in supply contrasts with signs of rising Group III supply in US at year-end.

·        Drop in supply likely to cushion impact of seasonal slowdown in demand at end-2023/early 2024.

·        Group III shipments from Mideast Gulf to Europe set to take longer as they travel via southern Africa rather than Suez Canal.

·        Several Group III cargoes from Asia and Mideast Gulf already head towards southern Africa rather than Suez Canal in Jan 2024, reflecting such moves.