· US base oils supply faces larger-than-expected surplus at year-end following Mexico’s imposition of stricter rules on base oils imports.· Timing of new rules coincides with seasonal slowdown in US demand, compounding impact.· US refiners face choice of lining up alternative outlets, or cutting run-rates, or producing other base oils grades instead.· Any move to target alternative outlets would require prices that make feasible the arbitrage to those markets.· More US supplies move to West Africa and to South Africa in recent weeks.· Shipments point to moves to tap steady demand in those markets and prices that make the shipments feasible.· US refiners also face stronger incentive to keep shut the arbitrage to move supplies to Americas from other sources like Asia.· Prospect of rise in surplus supply in coming weeks follows signs of pick-up in surplus volumes during Q3 2023..· US’ August paraffinic base oils output rises to second-highest level this year, well above average monthly levels over past year..· Higher output contrasts with slowdown in base oils/lube demand in domestic and overseas markets.· Trend leaves US’ supply outweighing demand in August for first time in four months, and subsequent rise in stocks..· Rise in surplus supply, lack of scheduled US Group II plant maintenance work in Q4 2023, and prospect of drop in flows to Mexico increases importance of pick-up in demand in domestic and other overseas markets.· Prospect of slowdown in domestic base oils demand in Q4 2023 increase importance of controlling production levels or of adjusting base oils prices to boost export volumes. .· Europe’s Group I base oils supply could be tighter than expected as pick-up in shipments to SE Asia cushion impact of expected rise in production in Italy.· Europe’s Group III base oils supplies from Mideast Gulf show signs of slowing in Oct-Nov 2023.· Europe’s Group II base oils supply shows signs of slowdown in shipments from US in Oct-Nov 2023.· Trend would increase Europe’s reliance on supplies from Netherlands to cover requirements.· Netherlands’ August base oils supply falls to six-month low on lower output and imports.· Supply contrasts with rise in demand, triggering slump in net supply..· Net supply stays low at a time of year when surplus supply typically builds because of seasonal slowdown in demand.· Lack of any significant supply-build leaves market better-balanced ahead of seasonal recovery in demand from end-Q3 2023..· UK’s August base oils supply lags demand for second time in three months..· Supply shortfall follows surge in surplus supply in July.· Supply shortfall limits size of UK’s supply-build in Q3 2023, when regional demand faces a seasonal slowdown.· Smaller supply surplus curbs pressure to line up outlets for the extra volumes.· Africa’s rising demand for UK supplies curbs further any pressure to line up alternative outlets.· Lack of extra base oils volumes adds to/extends Europe’s tight availability of spot shipments for overseas markets..Global base oils - week of Nov 6: Price outlook - arbitrage
