Demand Outlook

Americas/EMEA base oils demand outlook: Week of 6 May

Iain Pocock

·        US base oils demand shows signs of staying lower than usual at a time of year when it usually rises more strongly.

·        More muted seasonal pick-up in demand cushions against impact of tighter availability of some base oils grades.

·        US domestic Group II light-grade base oils prices strengthen vs heavy-grade prices, vs export prices, vs Group III prices and vs prices in overseas markets.

·        Outperformance of US domestic Group II light grades points to tighter supply-demand fundamentals for the grade.

·        Muted demand suggests supply is the key driver behind firmer light-grade prices.

·        US spot price discount to US posted prices stays unusually wide even with firmer light-grade prices.

·        Wide discount complicates price visibility, adds to buyers’ incentive to maintain lower stocks.

·        Recent slide in crude oil and diesel prices could curb demand further after refiners previously cited higher feedstock costs for recent rise in posted prices.

·        Muted domestic demand keeps pressure on refiners to displace imports with more Group III base oils or to cut supply.

·        Base oils and lube exports account for more than 50% of total US demand in Feb 2024 for twelfth straight month.

Exports share stays high

·        Exports’ high share of demand helps to cushion against impact of shrinking domestic consumption.

·        Still-muted domestic demand in Q2 2024 keeps pressure on refiners to maintain high export volumes or to trim supply.

·        Firmer US export prices vs other regions like India and Europe could dampen demand for more arbitrage shipments in those markets.

·        Brazil’s demand for overseas base oils supplies could stay more muted after imports rebound in March 2024.

Imports surge again

·        Rise in imports raises prospect of country carrying large supply surplus into Q2 2024.

·        Europe’s domestic Group II base oil price premium to Group I base oils slips to narrowest since Q4 2023.

·        Europe’s Group III 4cSt (low) price premium to Group I SN 150 slips to lowest since H2 2022.

·        Narrowing premium-grade price premium to Group I prices boosts incentive for Europe's blenders to procure more premium-grade base oils instead of Group I base oils.

·        Europe’s increasingly tighter Group I supply and more plentiful premium-grade supplies add to incentive for blenders to procure more premium-grade supplies.

·        Europe’s Group III 4cSt (low) premium to US Group III prices rises to widest since mid-2023.

Europe Group III premium widens

·        Widening premium boosts attraction of moving more Group III shipments to Europe.

·        Expectations of improving availability of Group II and Group III base oils give buyers the leverage to continue to procure smaller volumes more frequently.

·        Overseas demand for Europe’s Group I base oils could face slowdown in face of tighter supply and less competitive prices.

·        US Group I brightstock prices flip to discount to Europe export prices in recent weeks for first time since 2022, reflecting that trend.

·        Group II demand in Middle East for supplies from Asia-Pacific could stay higher than usual amid signs that flows from Saudi Arabia to the UAE remain lower than usual.

Pakistan’s May base oils supply slips

Taiwan’s June base oils exports hold firm

US’ May base oils exports to Europe rise

Asia’s May lube demand falls

US’ May base oils imports fall