The UK’s base oils output held firm in May, supporting a recovery in Europe’s Group I base oils supply to a four-month high.The recovery was insufficient to prevent regional supply falling from year-earlier levels for a third straight month at the same time as Europe faced a seasonal pick-up in demand.Tight supply-demand fundamentals triggered a slump in Group I exports to markets outside Europe and incentivized a more rapid switch to using premium-grade base oils.An extension of that switch to other base oils grades, combined with a recovery in Group I supply in the third quarter of the year, could trigger a subsequent pick-up in exports.The UK’s base oils output of close to 30,000 tonnes in May was similar to the previous month and year-earlier levels, government data showed.The steady production levels added to a rebound in Italy’s base oils output following the completion of plant maintenance in that country.Europe’s Group I supply got a further boost from a pick-up in imports from Egypt especially.Higher output and imports lifted the region’s total Group I base oils supply to more than 160,000 tonnes in May..The volume recovered from a seventeen-month low of around 140,000 tonnes in April to climb to the highest since January.It still lagged year-earlier levels by 17% in May and for a third straight month from year-earlier levels.Additional plant-maintenance work in the region continued into the start of the third quarter, keeping supply tighter.The sustained dip in Group I supply from the end of the first quarter overlapped a time of year when blenders sought additional volumes to cover a seasonal rise in demand after winter.The tight supply complicated those moves and had repercussions both within and beyond the European market.For the export market, Europe’s Group I shipments to outlets outside the region fell in May to the second-lowest level in twenty-two months. The lowest level during that period was in March.The drop in shipments kept the arbitrage shut and forced overseas buyers to turn to other sources such as the US and Latin America to cover more of their requirements.For the regional market, Europe’s tight Group I supply contrasted with healthy availability of premium-grade base oils. The diverging supply-dynamics incentivized buyers to procure more of those other grades instead.Buyers showed signs of acting on that incentivize, with Europe’s prices for Group II and Group III base oils outperforming Group I base oils in the second quarter of the year despite the tighter Group I supply..Netherlands’ May base oils output rises.Europe’s May Group III base oils supply holds firm.Global base oils exports to Africa fall in May.Global exports to Middle East fall in June.Base Oil News stories and analysis also available on ICIS platform
