Brazil’s April Base Oils Supply Outpaces Demand As Output Recovers

• Brazil's base oils supply rose to a 19-month high in April as domestic output recovered from production issues and imports remained elevated

• Supply exceeded demand for the first time in four months, pointing to stronger availability despite ongoing concern about global supply disruptions

• Reduc refinery’s base oils output rose even as its diesel production fell to an 11-month low, pointing to a broader shift toward lubricants feedstocks across global markets

Brazil's base oils supply rose to a 19-month high in April and exceeded demand for the first time in four months, pointing to stronger availability despite expectations that refiners would prioritise diesel production during the supply-disruption period.

Total supply, or output and imports combined, rose to more than 156,000 cubic metres (139,000 tonnes) in April, up from 121,000 cubic metres the previous month to the highest since September 2024, ANP data showed.

Demand also rose from a year earlier for a second straight month, but supply still moved back ahead of requirements.

Supply rose as domestic output recovered after production issues earlier in the year, reversing a period of unusually tight supply.

Key Highlights

·         Base oils output rose to more than 49,000 cubic metres in April, with Reduc output reaching a six-month high of 40,200 cubic metres after falling to its lowest level since November 2023 in February and March.

·         Reduc base oils accounted for 3.1% of the refinery’s total output, up from 2.2% in February and March and the highest share in six months.

·         Reduc’s diesel production fell to an 11-month low even as base oils output recovered, contrasting with expectations that refiners would prioritise transport fuels.

·         Imports accounted for at least 68% of total supply for a third straight month, underlining Brazil's dependence on overseas volumes to cover domestic requirements.

Market Repercussions

The recovery in output, together with sustained imports, pushed supply back above demand for the first time in four months.

Higher output and run-rates also pointed to an increasingly frequent trend among global refiners at a time when they were expected to prioritise transport fuels production.

Price controls in many markets to limit the impact of surging crude oil prices contrasted with base oils prices that were free to respond to tighter market conditions and made lubricant feedstock production more competitive.

The more attractive margins helped sustain base oils run rates, supporting supply at higher levels than expected.

For Brazil, the recovery in output and elevated imports pointed to underlying availability that was firmer than earlier supply shortfalls implied.

Some of March’s apparent deficit likely including volumes moving into downstream inventories rather than immediate consumption, leaving the market with a larger supply buffer than supply-demand fundamentals suggested.