· US base oils prices extend fall vs feedstock/competing fuel prices.· US base oils supply faces scant disruption from plant maintenance work in early 2024 vs early 2023.· But sliding base oil premium to VGO/heating oil incentivizes refiners to cut production.· Slump in US Group II heavy-grade export price premium to VGO/heating oil erodes counterbalance to weak light-grade prices.· Weaker heavy-grade prices add to incentive for refiners to cut production.· US Group II export prices remain unusually competitive vs Europe/Asia prices.· Trend boosts arbitrage opportunities to markets like Latin America, Europe, Africa and India.· Trend curbs competition from supplies from Asia.· Open arbitrage provides regular outlet to limit speed and size of any supply-build in US market..· US is destination for larger-than-usual share of Group III supplies from Bahrain and UAE in Nov 2023..· Trend shows signs of extending through end-2023 and early this year, and contrasts with fall in UAE/Bahrain supplies to Europe.· Trend increases Europe’s reliance on Group III supplies from within the region.· US Group III base oils premium to Europe prices holds firm in early 2024 despite signs of more plentiful supplies in US and tighter supplies in Europe.· Firm premium raises prospect of more Group III suppliers continuing to prioritise US over Europe..· Surge in Group III flows from Asia and Mideast Gulf to US shows signs of peaking in Jan 2024, with slowdown in cargo arrivals from Feb 2024.· Shipments from Saudi Arabia show signs of falling in Jan 2024 following surge in exports the previous month.· Slowdown coincides with moves by vessel operators to avoid Red Sea region.· Slowdown in shipments could complicate flow of supplies from Saudi Arabia to India especially.· Europe’s base oils supplies could get a boost if more shipments from Saudi Arabia are diverted to the region or nearby markets like North Africa.· There were signs of some such moves.· Europe’s Group I base oils supply could tighten if refiners respond to sliding margins by cutting output.· Margins slide close to year-earlier levels, even with surplus supply at start of this year showing signs of being lower than year-earlier levels.· Europe’s Group II base oils supply could face slowdown in shipments from Asia as logistical delays and narrowing gap between Asia and Europe prices cut attraction of working the arbitrage.· Europe’s Group III base oils supply could face pressure from weak prices relative to US and, increasingly, to Asia.· Trend curbs attraction of moving more supplies to Europe.· Pick-up in flows of premium-grade base oils from Spain in Dec 2023 and Jan 2024 likely to boost regional availability of Group III supplies with OEM approvals..· Italy’s surplus base oils supply in early 2024 is likely to be lower than year-earlier levels after output fell in Nov 2023 to a four-month low..· Italy’s November base oils stocks fall to 15-month low, down more than 25,000t down from year-earlier levels.· Trend could limit the number of additional surplus cargoes that Italy needs to clear early this year ahead of a seasonal pick-up in regional demand.· Europe’s steep domestic base oil price premium to export prices adds to incentive for suppliers like Italy to focus on regional market and minimize volumes for export. .· Global base oils exports to the Mideast Gulf likely fell in December amid a sharp slowdown in flows from Asia.· Asia had been the main source for a surge in exports to the region in 2023..· Slowdown in supplies from Asia to Mideast Gulf could extend into this year amid tighter supplies in Thailand, supply disruptions in Taiwan and firmer Chinese demand in first few months of 2024.· Slowdown would provide opportunity for surplus supplies from US and Europe to target Mideast Gulf market..Americas/EMEA base oils - week of Jan 29: Demand outlook.Global base oils - week of Jan 29: Price outlook - arbitrage.Global base oils - week of Jan 29: Price outlook - margins
· US base oils prices extend fall vs feedstock/competing fuel prices.· US base oils supply faces scant disruption from plant maintenance work in early 2024 vs early 2023.· But sliding base oil premium to VGO/heating oil incentivizes refiners to cut production.· Slump in US Group II heavy-grade export price premium to VGO/heating oil erodes counterbalance to weak light-grade prices.· Weaker heavy-grade prices add to incentive for refiners to cut production.· US Group II export prices remain unusually competitive vs Europe/Asia prices.· Trend boosts arbitrage opportunities to markets like Latin America, Europe, Africa and India.· Trend curbs competition from supplies from Asia.· Open arbitrage provides regular outlet to limit speed and size of any supply-build in US market..· US is destination for larger-than-usual share of Group III supplies from Bahrain and UAE in Nov 2023..· Trend shows signs of extending through end-2023 and early this year, and contrasts with fall in UAE/Bahrain supplies to Europe.· Trend increases Europe’s reliance on Group III supplies from within the region.· US Group III base oils premium to Europe prices holds firm in early 2024 despite signs of more plentiful supplies in US and tighter supplies in Europe.· Firm premium raises prospect of more Group III suppliers continuing to prioritise US over Europe..· Surge in Group III flows from Asia and Mideast Gulf to US shows signs of peaking in Jan 2024, with slowdown in cargo arrivals from Feb 2024.· Shipments from Saudi Arabia show signs of falling in Jan 2024 following surge in exports the previous month.· Slowdown coincides with moves by vessel operators to avoid Red Sea region.· Slowdown in shipments could complicate flow of supplies from Saudi Arabia to India especially.· Europe’s base oils supplies could get a boost if more shipments from Saudi Arabia are diverted to the region or nearby markets like North Africa.· There were signs of some such moves.· Europe’s Group I base oils supply could tighten if refiners respond to sliding margins by cutting output.· Margins slide close to year-earlier levels, even with surplus supply at start of this year showing signs of being lower than year-earlier levels.· Europe’s Group II base oils supply could face slowdown in shipments from Asia as logistical delays and narrowing gap between Asia and Europe prices cut attraction of working the arbitrage.· Europe’s Group III base oils supply could face pressure from weak prices relative to US and, increasingly, to Asia.· Trend curbs attraction of moving more supplies to Europe.· Pick-up in flows of premium-grade base oils from Spain in Dec 2023 and Jan 2024 likely to boost regional availability of Group III supplies with OEM approvals..· Italy’s surplus base oils supply in early 2024 is likely to be lower than year-earlier levels after output fell in Nov 2023 to a four-month low..· Italy’s November base oils stocks fall to 15-month low, down more than 25,000t down from year-earlier levels.· Trend could limit the number of additional surplus cargoes that Italy needs to clear early this year ahead of a seasonal pick-up in regional demand.· Europe’s steep domestic base oil price premium to export prices adds to incentive for suppliers like Italy to focus on regional market and minimize volumes for export. .· Global base oils exports to the Mideast Gulf likely fell in December amid a sharp slowdown in flows from Asia.· Asia had been the main source for a surge in exports to the region in 2023..· Slowdown in supplies from Asia to Mideast Gulf could extend into this year amid tighter supplies in Thailand, supply disruptions in Taiwan and firmer Chinese demand in first few months of 2024.· Slowdown would provide opportunity for surplus supplies from US and Europe to target Mideast Gulf market..Americas/EMEA base oils - week of Jan 29: Demand outlook.Global base oils - week of Jan 29: Price outlook - arbitrage.Global base oils - week of Jan 29: Price outlook - margins