• Global base oils supply returned to a sizeable surplus in April as disruption-driven buying slowed

• Asia's surplus widened sharply while Europe remained comparatively tight, reinforcing a growing regional split beneath a comfortable global balance

• Overall supply improved before the full loss of Middle East Group III volumes took effect, with grade-specific shortages emerging from May

Global base oils supply returned to a sizeable surplus in April as disruption-driven buying slowed, although the underlying Group III supply squeeze had yet to fully emerge.

Global demand rose 4% year on year in April, its tenth straight month of growth, EIA, BAFA, MET, Ministry of Energy, ANP, METI, KPA and other government data showed.

Firm supply and weaker demand widened the global surplus to more than 300,000 tonnes in April, from near parity in March.

Supply had tightened earlier in the year as the Middle East disruption drove a wave of precautionary buying. That initial tightness eased as the buying slowed.

The improvement reflected overall base oils availability rather than premium-grade Group III supply, as Middle East cargoes that loaded before the disruption began still worked their way into destination markets.

That effect faded from May after in-transit cargoes completed their arrivals.

Key Highlights

·         Global surplus rebounded to its largest April level in three years.

·         Asia's surplus widened to a four-month high as supply continued outpacing slower demand growth.

·         Europe's production surplus narrowed to a six-month low as lower output tightened regional availability.

·         The Americas returned to surplus for the first time in four months as demand growth slowed sharply.

Market Repercussions

Global supply proved resilient through the first wave of the Middle East disruption. The more targeted consequences are only now emerging.

The market's challenge increasingly shifted from total availability toward the distribution and composition of supply.

The loss of Middle East Group III base oils forced suppliers elsewhere to retain more premium-grade volumes within domestic or regional markets, even as the global balance improved.

Those secondary adjustments became increasingly visible during May and June as Singapore's production weakened and European suppliers kept more Group III within the region.

Lower Group III imports also put pressure on US refiners to retain more premium grades for domestic customers.

Overall supply remained adequate. The imbalance increasingly lay between grades rather than volumes, with Group III availability tightening even as broader base oils markets returned to surplus.