Americas/EMEA base oils - week of Oct 30: Supply outlook

·        Diesel prices weaken versus crude oil to lowest in three months, stay higher than usual.

·        Lower diesel margins and firmer base oils margins could incentivize refiners to maintain or raise output at a time of year when demand typically eases.

·        Americas Group I base oils supply likely to stay lower because of plant maintenance work in Q4 2023.

·        US Group II refiners could face more pressure to adjust run-rates if recent import-rule changes in Mexico curb flow of shipments of light-grade base oils to that market.

·        Any such slowdown would cut outlets for surplus light-grade supplies at a time when domestic demand in US faces seasonal slowdown.

·        Closed arbitrage to move Group II supplies to India limits further US refiners’ options unless prices adjust to make arb more feasible.

·        US Group III supply shows signs of pick-up in flows from Asia and Mideast Gulf in Oct 2023.

·        Europe’s Group III supplies from Mideast Gulf show signs of rising in Oct 2023 after slowing in Sep 2023.

·        Europe’s imports of Group III base oils from Mideast Gulf rise in three months to August, lag slightly the volume of supplies bound for US.

·        US imports from Mideast Gulf previously far exceeded volume of supplies bound for Europe.

·        Trend coincides with weaker US demand for Group III base oils, compounds surplus Group III base oils supplies in Europe.

·        Any extension of that trend would likely maintain pressure on Europe’s Group III market.

·        Europe’s Group III base oils supplies from Mideast Gulf show signs of slowing in September before rising again in October.

·        South Korea’s September base oil exports to Europe rise to five-month high.

·        Rise in Group III shipments would coincide with signs of pick-up in supplies from Mideast Gulf reaching Europe in October.

·        Rise in shipments coincides with signs of slowdown in shipments from Spain in October.

·        Europe’s Group II supplies from US likely fall in Oct 2023 vs Sep 2023 following slowdown in shipments in recent weeks.

·        Lack of surplus Group I supplies in Europe in recent months countered impact of closed arbitrage and weak demand in markets like North Africa and Turkey.

·        Any rise in surplus supplies at year-end would face challenge of prices adjusting to levels that make the arbitrage feasible, and lining up outlets where demand is sufficient to absorb the supplies.

·        Slowdown in global base oil exports to Egypt throughout most of this year highlights that challenge.

·        Southeast Asia shows signs of becoming more regular outlet for supplies from Europe, after plant closure in Japan tightens structural supply of Group I in the region.

·        Spain’s fall in Group I base oils output and run-rates continues through August, contrasts with steadier diesel run-rates.

·        Trend suggests refiners focusing more on boosting diesel output rather than base oils.

·        Global base oils exports to Mideast Gulf rise to four-month high in August, extending surge in shipments to the region.

·        Supplies from Asia account for almost 60pc of shipments to Mideast Gulf in first eight months of 2023, up from around 40pc during same period last year.

·        Trend reflects surge in Mideast Gulf base oils demand, and Asia refiners benefiting the most from that rise in demand.

·        Trend highlights change in global trade flows in face of tighter European supply and rising surplus volumes in Asia and US.