Brazil's base oils surplus rose to a 21-month high in June as a surge in imports outpaced weaker demand, easing immediate tightness while increasing the country's reliance on overseas supply.

Total supply, or domestic production and imports combined, rose 3% from a year earlier to 141,000 cubic metres (125,000 tonnes), ANP data showed.

Imports rose for a fourth time in five months while domestic output fell to a three-month low as scheduled maintenance cut production at Petrobras' Reduc Group I plant in June.

Total demand fell to less than 115,000 cubic metres, the lowest since December 2023.

The resulting surplus eased near-term pressure to secure cargoes, but it came at the cost of deeper reliance on a single overseas source, leaving Brazil more exposed to any disruption in that market.

Key Highlights

·         Total supply exceeded demand by more than 26,000 cubic metres in June, the largest monthly surplus in 21 months.

·         Domestic production fell for an 11th straight month, while imports accounted for 72% of total supply, the highest share since October 2023.

·         Lubricants demand fell for a second straight month to its lowest level since December 2023, even though first-half demand still exceeded year-earlier levels.

·         US shipments accounted for more than three-quarters of Brazil's imports during the first half of the year, with the share rising from the previous year.

Market Repercussions

Brazil’s supply balance flipped from surplus to shortfall and back in each of the last four months as volatile domestic consumption coincided with production issues and surging imports.

The volatility could ease as Petrobras completed maintenance and as demand reverts closer to its typical pattern.

Even so, Brazil was set to remain unusually dependent on imported base oils, with most of that supply originating from a single source.

That concentration matters because US supply is itself structurally tight, with little surplus available for export and prices already well above Asia's even with a relatively quiet hurricane season so far this year.  

Asia remains an alternative source of supply, but its ability to respond quickly is limited. Producers were already covering for the loss of Middle East supply, while longer freight times and higher transport costs made it a slow, costly substitute.

June's maintenance had been planned well in advance, giving Brazil time to secure additional imports. Any unplanned disruption to US supply, particularly during the Atlantic hurricane season, would leave far less time to respond.