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Brazil’s base oils supply balance moved into a shortfall in August as lubricants demand rose faster than total supply
Higher imports lifted total supply to a nine-month high, but domestic output fell back after July’s post-maintenance recovery
US suppliers remained Brazil’s main source of imported base oils, leaving buyers exposed to tighter-than-usual supply in the US market
Brazil’s base oils supply balance tightened in August as stronger lubricants demand absorbed higher imports, leaving the country increasingly reliant on overseas barrels to cover its needs.
Brazil’s total base oils supply rose to more than 145,000 cubic metres (129,000 tonnes) in August from about 140,000 cubic metres in July, the highest level in nine months, ANP data showed.
Total demand, or lubricants consumption and base oils exports combined, rose faster, to close to 150,000 cubic metres, the highest in five months.
Domestic output fell back to below 50,000 cubic metres after reaching a 12-month high of more than 60,000 cubic metres in July, following maintenance at Petrobras’ Reduc refinery.
Higher imports more than offset a fall in domestic output from July's post-maintenance high. But lubricants demand also rose, increasing year on year for the first time in four months as consumption moved closer to its usual pattern.
A market that only just matched supply in July moved into a shortfall in August, underscoring its reliance on imports at a time when its main supplier, the US, has less to spare than usual.
Key Highlights
Demand exceeded supply by more than 3,000 cubic metres, after supply only narrowly covered demand in July.
Lubricants demand rose 6% year on year to more than 141,000 cubic metres, the highest since March.
Imports covered 68% of lubricants demand, up from 62% in July and above a typical share of around 66% in the year to May.
The US share of Brazil's imports stayed below typical levels for a second straight month, but the US remained by far the largest supplier.
Market Repercussions
A balance in shortfall leaves Brazil needing a large flow of imports just to keep pace as domestic demand returns to more normal levels.
Most of those barrels still come from the US, where supply is likely to stay tighter than usual until its own Group III imports recover. With Middle East flows still disrupted, that recovery looks unlikely before next year.
The usual seasonal slowdown in US demand in the fourth quarter could free up some barrels for export. Even then, the surplus is likely to be smaller than usual.
That gives Brazil more reason to keep widening its supplier base.
Shipments from China and India rose in recent months. Turning them into regular sources rather than occasional ones would reduce Brazil’s dependence on US exports. But Brazil would still rely on overseas supplies to cover most of its requirements.
