Americas/EMEA base oils supply outlook: Week of 31 March

·         US base oils prices mostly stay in narrow range vs VGO prices, contrast with surging premium to VGO this time a year ago.

·         Margins hold in narrow range this year even as extensive round of plant maintenance tightens supply.

·         Supply could face additional disruption from markets like Canada, depending on impact and reaction to imposition of any US tariffs.

·         Mostly range-bound base oils margins suggest supply remains sufficient to cover domestic base oils requirements.

·         Ongoing flow of shipments to outlets like West Africa suggests surplus supply remains sufficient to put together such cargoes.

·         US domestic Group II light-grade premium to export prices widens to highest in more than five months.

·         US domestic Group II light-grade discount to Group II N600 tightens to narrowest in almost five months.

·         Dynamic points to tighter domestic availability of light grades, muted overseas demand for additional supplies.

·         US Group III base oils supply set to get boost from delivery of several large shipments from South Korea and Middle East in H1 April 2025.

·         Cargoes would follow surge in shipments from those markets reaching US in March 2025.

·         US and Europe could face further pick-up in Group III shipments from Middle East to balance out signs of more protracted slowdown in shipments to Asia.

·         Slowdown in shipments to Asia coincides with rise in China’s Group III base oils output.

·         US already accounts for more than 40% of global Group III imports from Middle East in the three months to Jan 2025.

·         US share is similar to 2024 and up from less than 35% in 2023.

·         Europe accounts for close to 30% of Group III shipments from Middle East in three months to Jan 2025, up from 24% share in 2024 and 26% in 2023.

·         Any further rise in US and Europe share of shipments, without any drop in total supply, could add to pressure on Group III base oils fundamentals in both markets.

·         Argentina’s base oils output accounts for more than 65% of country’s supply in Jan-Feb 2025.

·         Share rises from than 60% of total supply in 2024 and less than 50% in 2023.

·         Share could fall if any extension of revival in Argentina’s lube demand triggers pick-up in requirements for supplies from overseas markets.

·         Share could hold steady if concern about impact of any tariffs on costs and trade flows prompts buyers to minimize exposure to supplies from overseas markets.

·         Europe’s Group I base oils supply could stay balanced-to-tight amid signs of more limited build-up of surplus volumes at start of year, followed by seasonal pick-up in demand.

·         Firmer demand and blenders’ low stocks would magnify impact of lower production capacity and any plant maintenance work in coming weeks.  

·         Group I base oils output among some of Europe’s major producers rises to four-month high in Jan 2025.

·         Output still falls from year-earlier levels for fifth month.

·         Shutdown of Turkey’s Group I unit in Jan 2025 for second month curbs pick-up in supply.

·         US Group I exports to Europe dwindle in late-2024 and early this year, further trimming any regional supply surplus.

·         Europe’s Group II base oils supply likely to be more readily available early this year vs H1 2024, when plant maintenance slashed regional output.

·         Lower-than-usual shipments from US to Europe at end-2024 and early this year could curb pick-up in supply.

·         Increasingly regular flow of large shipments from Netherlands to Singapore could also limit size of pick-up in supply.

·         Europe’s Group III base oils supply could get boost from shipment of two large cargoes from Spain to northwest Europe in March 2025.

·         Cargoes boost shipments from Spain to northwest Europe to highest in seven months.

·         Sustained rise in shipments to Nigeria from US and UK helps to keep surplus supply more manageable in both source-markets at end-2024 and early this year.

·         UK shipments to Nigeria account for unusually large share of Europe’s exports to the West African country in H2 2024 and early this year.

·         Dynamic points to tighter surplus availability in continental Europe even during winter months.

·         Any extension of dynamic would point to growing importance of UK as key source of European supplies for markets like Nigeria.

·         Markets like Kenya remain much more reliant on base oils supplies from Europe as surplus US supplies mostly move to West Africa.

·         East Africa markets like Kenya could be attractive target-markets for suppliers like Middle East, India and Singapore as new production capacity starts up in those markets in the coming months.