Global Base Oils Fundamentals Tighten Further In February

The global surplus of base oils supply over demand fell to a four-month low in February, shrinking the market buffer ahead of end-February disruptions and the March seasonal rise in lubricants demand.

The surplus of supply over demand fell to less than 250,000 tonnes in February, down from more than 420,000 tonnes in January and 25% lower year on year, EIA, METI, Ministry of Energy, ANP and other government data showed.

The surplus shrank even as global base oils supply rose 15% year on year in February, extending gains for a fourth straight month.

But demand rose faster, climbing 20% year on year and extending an eight-month growth streak, leaving the surplus at its lowest February level in three years.

Supply disruptions from end-February then hit a market where demand growth in the Americas and Asia had already absorbed much of the surplus that would normally have cushioned it.

Key Highlights

·         Americas demand surged 56% year on year and for an eighth straight month, with US consumption more than doubling and more than offsetting a slowdown in Latin America.

·         Asia demand increased 11% year on year and for an eighth consecutive month.

·         Europe demand fell 1% year on year and for the third time in four months, contrasting with the strong growth in other regions and adding to the incentive for blenders to maintain lean stocks.

Market Repercussions

Lower prices and improving supply earlier this year had encouraged buyers to maintain lean inventories.

But sustained demand growth in the Americas and Asia continued to absorb additional supply through February, leaving the global market structurally tighter than usual heading into the spring oil-change season.

The supply disruptions from end-February then hit a market carrying a smaller-than-usual buffer, magnifying the impact of tighter availability and firmer prices.