Americas/EMEA base oils supply outlook: Week of 8 July

·        US base oils values hold firm vs VGO/heating oil prices.

·        Sustained strength of US base oils values points to tighter supply-demand fundamentals, sustaining incentive for refiners to maintain or raise output.

·        US base oils supply could stay tighter at start of Q3 2024 if domestic demand stays stronger than usual for longer than usual.

·        Supply could stay tighter if unplanned plant production issues were to add to recent plant maintenance work.

·        Active start to Atlantic hurricane season adds to concerns of such a scenario.

·        Tighter supply and firmer domestic demand cushions the impact of a closed arbitrage to many key outlets.

·        An extension of the trend would mirror the US market in April 2024, when US base oils supply tightened because of a rebound in domestic demand.

·        Any slowdown in domestic demand, combined with firm prices, could by contrast trigger a more rapid rise in surplus supply or reduce the impact of lower production levels.

·        Such a scenario would increase pressure on a revival in demand from overseas markets, and on price levels that triggered such a pick-up in demand.

·        Shipments from US show signs of rising strongly in June 2024 after slowdown the previous month.

·        Such flows would limit further any build-up of surplus US supplies at start of Q3 2024.

·        Signs of pick-up in US shipments to Brazil and Europe in recent weeks would curb need to target markets where buyers are targeting lower prices.

·        Supply in the Americas could get a boost from overseas shipments from other markets as firm US prices make more feasible a pick-up in arbitrage cargoes from Asia.

·        Signs of pick-up in cargo flows from Asia to Americas suggests some such arbitrage shipments have already begun.

·        Argentina’s May base oils supply falls to seven-month low as imports slump.

·        Lower supply sharply lags lube demand and production, triggering fall in base oils stocks.

·        Lower base oils supply and inventories raise prospect of moves to procure addition volumes to replenish stocks.

·        Argentina’s rising lube inventories could curb scope of such moves as blenders first move to trim those stocks.

·        Ongoing fall in lube demand could prolong signs of buyers’ preference to secure more supplies from domestic rather than overseas sources.

·        Argentina’s base oils imports fall as share of total supply in first five months of 2024, reflecting ongoing signs of such moves.

·        Brazil’s base oils imports stay high in May 2024 and first five months of 2024 even after completion of plant maintenance in 2H 2023.

·        High import volumes boost their share of Brazil’s supply to 63% of total in Jan-May 2024.

·        Share falls from 72% in H2 2023, but rises from 56% of total in H1 2023 and 60% in 2022.

·        Trend points to sustained rise in requirements for overseas supplies.

·        Shipments from US to Brazil show signs of rising in June 2024, with several cargoes set to arrive in the coming week.

·        Europe’s Group I base oils refiners focus on regional market, compounding tighter availability for markets beyond Europe.

·        Refiners focus on regional market even with export prices at unusually competitive levels versus domestic prices.

·        Italy shows signs of reflecting that trend as base oils output falls to three-month low in May 2024.

·        Lower output coincides with drop in Italy’s base oils exports to markets outside Europe in first four months of the year, even as country’s total exports rise in Q1 2024.

·        UK’s April base oils supply stays higher than usual, helping to cover for firm demand in domestic and continental Europe markets.

·        Firmer demand in those markets curbs share of supplies available for markets outside the region.

·        Dynamic suggests Europe's tighter Group I supply set to impact outlets outside Europe more than regional buyers.

·        Dynamic increases importance for overseas buyers to line up alternative supply sources.

·        Europe’s Group II base oils supply likely rebounds from May 2024 after staying unusually low in April 2024 for third month.

·        Supply stays low in April 2024 as sustained slowdown in Netherlands’ base oils output continues for third month.

·        Europe’s Group II base oils prices start to weaken versus Group I prices and US Group II prices from end-Q1 2024.

·        Relative price weakness at end-Q1 2024/early Q2 2024 points to weak demand, with tight supply sufficient to meet demand.

·        Relative price weakness in more recent weeks points to firmer demand that balances out recovery in regional supply.

·        Any ongoing recovery in regional supply likely to outweigh any slowdown in shipments from US, where higher prices cut attraction of moving more supplies to Europe.

·        Even so, shipments from US to Europe show signs of reviving in June 2024 after slowdown the previous month, triggering rise in supplies in July 2024.

·        Any ongoing recovery in regional supply at start of Q3 2024 would likely coincide with slowdown in demand.

·        Europe’s Group III base oils supply likely to get boost from arrival of several shipments from Bahrain and southeast Asia in coming weeks.

·        Shipments of premium-grade base oils from Spain to northwest Europe hold firm through June 2024.