Group II supply rose to a five-month high in January, boosting stocks ahead of disruptions from late-February
Rising shipments from the US and higher regional output lifted total availability to multi-month highs
Any slowdown in US exports would increase Europe’s reliance on regional production to meet Group II demand
Europe’s Group II base oils supply rose to a five-month high in January, boosting regional stocks ahead of supply disruptions linked to the Middle East conflict.
Total Group II supply, or regional output and imports combined, rose to more than 175,000 tonnes in January, climbing from around 165,000 tonnes in December to the highest since August, CBS Statline, Eurostat and other government data showed.
Supply rose during a period of seasonally weak demand, raising the prospect of surplus volumes and downward pressure on regional prices.
The higher supply and lower consumption instead provided a buffer against the immediate impact of war-related supply disruptions from the end of February.
Key Highlights
· The Netherlands’ base oils output rose to a five-month high of 108,000 tonnes, while production less internal consumption climbed to a thirteen-month high.
· Europe’s base oils imports from Group II-producing sources rose to around 70,000 tonnes, up from 61,000 tonnes in December and the highest in seven months.
· US-origin imports rose to a five-month high, with cargo flows pointing to inflows staying elevated in February.
· Europe’s effective supply, less the Netherlands’ internal consumption, rose to a sixteen-month high of around 140,000 tonnes, up from typical monthly levels of around 111,000 tonnes over the past year.
Market Repercussions
Europe’s role as an outlet for a surge in US base oils exports this winter contrasted with a more typical seasonal flow of surplus US volumes to markets such as India.
The shipments left US better balanced early this year, added to India’s supply-tightness and provided additional volumes for Europe ahead of the disruptions that followed in March.
The need to clear surplus US supply was already set to ease towards the end of the first quarter amid a seasonal pick-up in domestic demand.
The surge in diesel prices and the slump in Group III availability in March raised the prospect of a further squeeze on US export volumes.
A slowdown in those flows would increase the importance of Europe’s earlier stock-build. Any prolonged slowdown would increase reliance on regional production to meet Group II demand.