Americas/EMEA base oils supply outlook: Week of March 25

·        Rise in US posted prices barely keeps pace with rise in feedstock costs, keeping margins under pressure.

·        Prices that lag rise in feedstock costs, and wide gap between US export prices and domestic prices, suggest US market continues to face surplus supply.

·        Persistent surplus supply points to limited moves to adjust production to trim size of surplus.

·        Netherlands moves unusually large volume of base oils to US in Jan 2024, even with country’s large supply surplus.

·        Rise in shipments to US coincides with steep fall in US base oils exports in Jan 2024.

·        Shipment flows add to possibility of unexpected supply issues in US in early 2024.

·        US Group III base oils prices maintain steep premium to Europe prices even amid signs of healthy availability and muted demand.

·        Steep premium continues to incentivize overseas producers to prioritise US market over other regions with more supplies.

·        South Korea’s February base oils exports to US fall to second-lowest level in three years, while shipments to Europe rise.

·        South Korea’s March base oils exports to US also show signs of staying lower.

·        Shipments to US fall in Feb 2024 despite US Group III prices maintaining steep premium to Europe prices.

·        Slowdown in shipments could reflect moves to redirect supplies to other markets as more shipments from Mideast Gulf target US.

·        Any extension of the trend raises prospect of curbing Group III supply from Asia in US, and increasing its reliance on supplies from Mideast Gulf.

·        Open arbitrage continues to provide multiple outlets for surplus US supplies.

·        Europe’s Group base oils I supply set to tighten following likely closure of plant in Italy in coming weeks.

·        Planned closure would follow pick-up in availability of spot supplies from Italy in early 2024 amid signs of clearout of stocks. 

·        Europe’s tighter Group I supply likely to curb further its volumes for overseas markets.

·        Europe’s Group I export price discount to overseas markets narrows, reflecting such a trend.

·        Europe’s January base oils exports to non-EU markets rise from Dec 2023, fall from year-earlier levels.

·        Fall in shipments from year-earlier levels could reflect less feasible arbitrage at end-2023 vs end-2022.

·        Fall in shipments could reflect smaller overhang of surplus supplies compared with year-earlier levels.

·        Fall in shipments includes slump in exports to Mideast Gulf, with trend likely to continue as vessels avoid shipment via Red Sea region.

·        Fall in shipments to Mideast Gulf coincides with slowdown in exports from Saudi Arabia.

·        Trend set to leave tighter for longer the availability of high-quality Group I base oils in Mideast Gulf market.   

·        Europe’s Group II supply set to remain more reliant on shipments from US while region’s sole virgin base oils unit undergoes maintenance work.

·        Europe’s Group II supply could remain more reliant on shipments from US even after completion of maintenance work if shrinking Group I supply boosts demand for Group II base oils.

·        Europe’s Group III supply is more reliant on supplies from within the region in early 2024 amid more prolonged voyage times for shipments from other regions.

·        Trend could magnify impact of planned maintenance work on Group III unit in Europe in Q2 2024.

·        Europe’s Group III base oils supply already falls in Jan 2024 amid slump in shipments from Mideast Gulf.

·        Lower supply balances out seasonal slowdown in demand at start of year, raises prospect of limiting build-up of surplus supplies.

·        Any extension of the trend through Q1 2024 could leave supplies lower than usual ahead of a typical seasonal pick-up in demand around spring-time.

·        Slowdown in shipments in Jan 2024 partly reflects rare slump in supplies from Qatar, as well as slowdown in shipments from UAE for a third month.

·        Sustained slowdown in shipments from UAE suggests supplies from that market are moving to other outlets instead like the US, where Group III prices remain at a steep premium to Europe prices.

·        Markets like Europe and north Africa could attract more supplies from Saudi Arabia in response to slowdown in shipments via Red Sea to more regular outlets like India.

·        Markets like Europe would be unlikely to replace India as a key outlet for very-light grade base oils.