Europe’s Group II base oils supply fell to a nineteen-month low in November as imports from key overseas refiners slumped, tightening availability ahead of a seasonal year-end demand slowdown.

Total supply, or regional output and imports combined, slipped to less than 135,000 tonnes in November, down from more than 150,000 tonnes in October and 8% lower year on year, government data showed.

The year-on-year drop in supply was the sixth in seven months, curbing the risk of a build-up of surplus volumes at a time of year when demand typically slows during the winter months.

Key Highlights

·         November base oils imports from key Group II suppliers fell year on year for a fifth straight month, dipping to their lowest level in ten months.

·         Imports from the US fell to their lowest since last January, while shipments from Saudi Arabia slid to an eighteen-month low.

·         Import flows could remain subdued in December, after US base oils exports to Europe fell in November to the lowest since late 2022.

·         Europe’s net supply, adjusted for the Netherlands’ refinery demand, fell month on month but remained within a relatively narrow range.

Market Repercussions

Europe’s Group II market tightened through the fourth quarter, even with prices for premium-grade base oils at steep premiums to other markets, which typically incentivize more arbitrage cargoes to move to the region.

The limited flow of such shipments reflected a combination of relatively balanced supply conditions in Asia and plant-maintenance work in the Middle East during the fourth quarter, restricting export availability.

US shipments to Europe mostly consist of term volumes, from suppliers that have an incentive to avoid downward pressure on regional prices.

Even so, moves to curb shipments into Europe left US sellers facing a growing challenge of redirecting surplus supplies to other outlets, especially amid a prolonged slump in shipments to Mexico.