Europe’s Group III base oils supply fell to a 30-month low in July as Asian shipments retreated from a June surge, leaving the market facing further pressure from European maintenance as seasonal demand recovers.

Supply fell to around 90,000 tonnes in July from close to 110,000 tonnes in June, Eurostat, the Port Authority of Cartagena and HMRC data showed. That was down 39% from a year earlier, the fourth straight year-on-year decline, and well below the 133,000-tonne monthly average of the past year.

Group III supply got a temporary lift in June when European volumes held steady and Asian shipments jumped to their highest in nearly five years, helping offset some of the loss from the Middle East.

That lift did not last, with Asian volumes falling back in July to closer to typical levels.

The slowdown showed the difficulty in sustaining higher shipments from other regions to offset the loss of Middle East supply even outside a period of plant maintenance.

Maintenance work at plants in Europe and Asia from August raised the prospect of further supply losses over the following months, just as European demand was approaching its seasonal recovery.

Key Highlights

·         Supply from Asia fell to less than 30,000 tonnes in July, from more than 53,000 tonnes in June and below the 32,000-tonne monthly average of the past year.

·         The July total included a record volume from India, though it was still far smaller than the volume India shipped to the US.

·         Middle East supply recovered to more than 5,000 tonnes, the highest in three months, but remained far below the 50,000-tonne monthly average from the year to March.

·         Europe Group III prices extended their rise into September to record highs, widening their premium over other grades and staying well above US prices.

Market Repercussions

Europe's own regional supply had been steady, but that was due to end with the maintenance at plants in Finland and Spain during the third quarter.

Supply from South Korea, Indonesia and Spain was on course to reach a three-month high of close to 70,000 tonnes in August, up from around 50,000 tonnes in each of the previous two months. The three sources had already accounted for more than half of Europe's total Group III supply in three of the four months to July.

But that volume was expected to slow sharply in September, with Spain facing its own maintenance and an Indonesian August cargo only due to arrive in October.

A cargo that had been bound for Europe from India was redirected to the US instead, adding to the tightness.

Group III prices, already at record highs, pointed to a tighter market in September as a seasonal pickup in demand adds to the pressure on supply.