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Europe's Group II base oils supply rebounded to a nine-month high in May as higher Dutch output and stronger imports from the US and Saudi Arabia lifted availability
Group II supply routes proved less exposed to Middle East disruptions than Group III, helping keep the European market better supplied
The narrower Group II premium over Group I suggested easing supply pressure, while the wide Group III premium pointed to continued tightness in Group III availability
Europe's Group II base oils supply rebounded in May as flows from key suppliers recovered, avoiding the logistical disruptions affecting Group III.
Regional supply, or domestic production and imports combined, rose to around 180,000 tonnes in May from less than 135,000 tonnes in April, CBS Statline, Eurostat and other government data showed. It was the highest level in nine months after April's two-year low.
Higher production in the Netherlands and stronger imports from both the US and Saudi Arabia drove the recovery.
All three sources sit outside the Strait of Hormuz disruption that slashed Middle East Group III shipments to global markets from late February. That enabled Europe’s Group II supply to rebound instead.
Key Highlights
· Netherlands base oils production recovered above its average monthly level after April's dip to a ten-month low.
· Imports from the US rose to their highest level in 11 months, while Saudi Arabia shipments reached a 19-month high.
· Imports from the US showed signs of easing in June, with the slowdown extending into July.
· Group II supply recovered even as Group III availability fell to a multi-year low.
Market Repercussions
The rebound pointed to the main advantage in Group II's supply chain: diversity and location.
Imports from the US originated from several refiners, while none of Europe’s main Group II supply routes relied on shipments through the Strait of Hormuz.
Group III had neither advantage: a large share of global supply remained concentrated among a small number of Middle East producers all exposed to the same disruption at once.
The rebound may not last at the same pace. Imports from the US looked set to ease in June and July as shipments slowed.
Even so, the narrower Group II premium to Group I in recent weeks pointed to softer underlying demand following the March-April surge, offsetting any slowdown in supply.
That contrasted with Group III, whose premium over Group II rose sharply in the second quarter and has held near those levels since, as supply constraints continued to outweigh the seasonal slowdown in demand. The divergence looked set to persist while Middle East disruptions continued.
