Italy’s base oils output rose to a three-month high in December, recovering from production cuts in October and November because of plant-maintenance.

Total Group I base oils output climbed to 32,300 tonnes in December, up from less than 14,000 tonnes in October and November, Ministry of Ecological Transition data showed.

Even with the rebound, December production remained well below monthly levels of more than 53,000 tonnes in the four months to September, limiting surplus supply at year-end for markets like Africa.

Key Highlights

·         Fourth-quarter production dropped to less than 57,000 tonnes, down from nearly 160,000 tonnes in the third quarter and the lowest level in more than five years.

·         December base oils exports rose to 34,000 tonnes, recovering from a more-than-five-year low of 27,000 tonnes in November, but still the second-lowest volume in seven months.

·         Italy’s fourth-quarter base oils supply shortfall, or output less domestic and export demand, widened to more than 80,000 tonnes, from less than 10,000 tonnes in the third quarter.

·         Lower output and exports contrasted with strong domestic lubricants consumption, which rose in December for a seventh straight month.

Market Repercussions

The fourth-quarter production slump cut surplus availability and exports at a time of year when Italy typically faced pressure to clear lingering shipments.

The lack of any such surplus curbed the need for refiners to offer discounted prices to create arbitrage opportunities and instead raised the prospect of extending unusually tight supply-demand fundamentals in Europe in October and November.

The lack of surplus export cargoes also pushed buyers in markets like West Africa to turn to alternative suppliers like the US to secure additional volumes.

Stronger demand from markets like Africa, combined with dwindling competition from Italy, provided timely support to a US market facing plentiful supply and weak demand from traditional outlets like Mexico.