Americas/EMEA base oils supply outlook: Week of 27 May

·        US base oils price premium to feedstock/competing fuel prices extends rise.

·        Diesel premium to crude oil stays close to lowest in past year.

·        Rising base oils premium and weaker motor fuel premium to crude oil adds to incentive for refiners to maximise base oils output.

·        Sustained incentive to boost base oils output points to tighter availability in short term, raises prospect of strong recovery in supply.

·        Tighter supply curbs sellers’ need to target export markets with surplus volumes in short term.

·        US Group II export prices duly resume faster recovery than domestic prices, narrowing their discount to domestic prices.

·        Higher export prices raise prospect of sharper pick-up in surplus supplies because of less feasible arbitrage to overseas outlets.

·        Exports accounted for more than 50% of total US base oils demand over past year.

·        Large export volumes over past year limited build-up of surplus supplies.

·        Any slowdown in exports would require large rebound in US’ domestic demand to sustain supply-demand balance.

·        US Group III base oils supply from overseas markets could tighten amid signs of ongoing slowdown in shipments from Asia.

·        US Group III prices stay at steep discount to Europe prices, curbing attraction of moving shipments to the US from other markets like Middle East.

·        Narrowing US Group III price premium to Group II prices curbs incentive for domestic refiners to produce Group III base oils instead of Group II base oils.

·        Europe’s tighter structural supply of Group I base oils magnifies impact of any unexpected plant shutdowns.

·        Europe’s tighter structural Group I supply triggers sustained rise in Group I export prices that continues to outpace firmer domestic prices.

·        Rising Group I export prices complicate further the arbitrage to outlets like Middle East and India.

·        Trend suggests higher export prices reflect tighter supply more than any pick-up in overseas demand.

·        Europe’s base oils exports to non-EU markets fall in March 2024 and in Q1 2024 year-on-year for fourth straight quarter.

·        Europe’s base oils exports to non-EU markets fall in Q1 2024 to second-lowest level for that period in the last six years.

·        Exports fell even ahead of closure of Group I base oils unit in Italy.

·        Europe’s base oils exports likely to continue to trend lower, especially for Group I base oils, as refiners focus on covering regional demand.

·        Healthy global availability of Group II base oils by contrast cushions impact of any planned or unexpected supply disruptions of the grade.

·        Europe’s steady Group II supply and multiple sources of the grade from other regions contrast with its tighter Group I supply.

·        Steady supply and narrower price premium to Group I base oils boost incentive for blenders to use more Group II base oils in their formulations.

·        Europe’s Group III base oils supply shows signs of extending recovery through Q2 2024.

·        Europe’s March Group III base oils supply rises to two-year high on rebound in shipments from Middle East and Asia.

·        Rise in Group III supplies contrasts with unusually low volumes in Jan-Feb 2024.

·        Rise in supplies boosts availability of premium grades during Group II plant maintenance in Europe in March 2024, Group III plant maintenance in Q2 2024.

·        Supplies could stay firmer as Europe Group III prices maintain steep premium to US prices, incentivizing overseas refiners to move more shipments to Europe in Q2 2024.

·        Base oils shipments from Saudi ports of Yanbu and Jeddah combined rise to markets west of Suez Canal in April 2024 even as total shipment volumes fall from March 2024.

·        Trend cushions slowdown in export volumes from Saudi Arabia in Jan-April 2024, supports rising flows to outlets in Africa and Europe.

·        Trend taps drop in Europe’s Group I base oils production supply and the region’s growing difficulty of covering Group I requirements in domestic and overseas markets.

·        Trend cuts reliance on UAE and India markets ahead of expected surge in base oils production capacity in India over coming year.

·        Trend leaves UAE more reliant on other sources for now to cover its base oils requirements.

·        Global base oils exports to Middle East could face slowdown in Q2 2024.

·        Shipments from Asia to Middle East slip to four-month low in April 2024.

·        Shipments slow after surge in global base oils exports to Middle East in February and March 2024 leaves region with plentiful supplies, pressuring prices.

·        Shipments to Middle East could slow in Q2 2024 amid less attractive arbitrage and as tighter supply in US and seasonal pick-up in demand in Europe curb surplus volumes from those markets.

·        Any slowdown in flows from those markets could increase demand for supplies from Asia in the coming months.