Americas/EMEA base oils - week of Feb 19: Supply outlook

·        US base oils prices weaken versus competing fuel/feedstock prices, incentivizing refiners to cut production.

·        US domestic price premium to export prices stays wide, cushioning impact of weak export prices and curbing pressure on refiners to cut production.

·        Trend could prolong persistent availability of surplus supplies.

·        US faces light round of scheduled plant maintenance work in early 2024, especially vs same time a year earlier.

·        Lack of scheduled maintenance work leaves market facing more supply than year-earlier levels unless refiners take moves to adjust production.

·        Surplus of US’ December base oils exports over imports stays wider than usual.

·        Surplus stays wide as ongoing wave of US exports at year-end cushions impact of surge in Group III imports from Asia.

·        Trend raises prospect of leaving US market with balanced-to-tighter supply of Group II base oils and growing surplus of Group III base oils at year-end.

·        Narrowing gap between US Group II and Group III prices in Q4 2023 reflects that dynamic.

·        US’ Group III base oils prices maintain steep premium to Europe prices early this year.

·        Firm prices incentivize Mideast Gulf/Asia refiners to continue to target US market with more Group III base oils.

·        US set to see slowdown in arrival of Group III shipments from South Korea, rise in arrival of shipments from Mideast Gulf in March 2024.

·        Americas’ November base oils supply holds steady from Oct 2023, contrasts with slump in region’s demand.

·        Trend highlights need for US to boost base oils exports, which duly materialized, slowing supply-build.

·        Europe’s sliding Group I base oils values versus competing fuel/feedstock prices could incentivize refiners to cut production.

·        Price weakness coincides with prospect of permanent closure of Group I plant in Italy in coming months.

·        Additional uncertainty about supply of Group I base oils adds to incentive for blenders to maximise consumption of other grades instead.

·        Signs of pick-up in flows from Saudi Arabia to Europe coincide with slowdown in shipments via Red Sea.

·        Prospect of tighter Group I supply in Europe could boost attraction of more regular flows of Group I base oils from Saudi Arabia to Europe.

·        Europe’s Group II base oils supply could tighten because of scheduled plant maintenance work in the region in Q1 2024.

·        Surge in US exports to Europe in Nov and Dec 2023 likely to dampen impact of drop in region’s Group II output in Q1 2024.

·        Steep and still-widening premium of Europe Group II prices over US export prices incentivizes US refiners to maintain high exports to the region.

·        Several large cargoes from US scheduled to reach Europe in 2H Feb and early March 2024.

·        Europe’s Group III base oils supply likely to get support from pick-up in flows from Spain.

·        Shipments of premium-grade supplies from Spain revive in Dec 2023 and Jan 2024 after slowdown during previous two months.

·        Turkey’s December Group I base oils imports slump from year-earlier levels amid tighter supply in Europe.

·        Trend of tighter Europe supply could extend through this year if Group I plant in Italy closes.

·        Turkey’s December Group I imports from Russia rebound amid increasingly competitive prices vs Europe supplies.

·        Firmer prices and prospect of tighter supply in Europe could further boost Turkey’s demand for Russian supplies in 2024.

·        Trend would increase Turkey’s importance as key outlet for Russian supplies, especially if they face slowdown in flows to Mideast Gulf because of Red Sea-related disruptions.

·        Egypt set to take delivery of shipments from Saudi Arabia and US in 2H Feb 2024 – in addition to more regular monthly flows from Europe.