Americas/EMEA base oils demand outlook: Week of 10 June

·        Increasingly firm US base oils margins point to strong domestic demand and tight supply.

·        US supply-demand fundamentals shows signs of relative balance rather than tightness.

·        US domestic base oils demand would need to hold firm or rise to absorb prospect of pick-up in supplies.

·        Prospect of growing disconnect between firm margins and demand fundamentals - that are likely to hold steady or weaken over the coming weeks - could add to buyers' preference to maintain lower stocks.

·        Main uncertainty is concern about weather-related supply disruptions over coming months, and extent of any stock-building in anticipation of such a scenario.

·        Prospect of slowdown in Asia’s base oils demand over coming months could free up more supplies from that market to cover for any unexpected drop in supplies in US.

·        Any such shipments would incur significant lag between procurement and arrival of the supplies unless the cargoes were lined up over the coming weeks.

·       US’ March base oils/lube demand exceeds supply for third month and by largest volume in nine months.

·       Demand exceeds supply as surge in exports more than compensates for muted domestic consumption.

·       Exports duly account for more than 90% of US’ total base oils/lube output in March 2024.

·       Imports account for almost 80% of US’ net supply in March 2024.

·       Trend points to large surplus of Group II base oils and stronger demand for Group III base oils.

·       US refiners’ moves to boost Group III output and trim Group II production reflects response to those supply-demand dynamics.

·       Expansion or extension of those moves could curb size of surplus Group II supplies in coming months.

·       Necessity to curb surplus Group II supplies is set to rise once new base oils production capacity starts in India in coming months.

·       Rise in India’s domestic base oils supply could reduce country’s role as regular outlet for surplus supplies from markets like US.

·        Europe’s Group I base oils price discount to Group II base oils stays narrow; discount to Group III base oils narrows further.

·        Strength of Europe’s Group I base oils prices points to still-firm demand even amid rising incentive to use premium-grade base oils instead.

·        Still-firm demand for Group I base oils could start to attract more arbitrage shipments from increasingly distant markets.

·        Europe’s Group III price-premium to US Group III prices holds at narrower level than in mid-May 2024, stays low versus Asia Group III prices.

·        Narrower premium points to sufficient supply to meet demand, could curb attraction of moving more Group III shipments to Europe.

·        Turkey’s April base oils imports edge up year-on-year, hold steady in Jan-April 2024 from year-earlier levels.

·        Turkey’s base oils imports from Russia rise more than 45% in Jan-April 2024 from year-earlier levels.

·        Shipments from Russia account for 25% of Turkey’s base oils imports in April 2024.

·        Share of Turkey’s shipments from Russia rebounds sharply from levels in five years to mid-2022, reverts closer to levels in 2016.

·        Trend highlights Turkey’s rising consumption of supplies from Russia, and still-high consumption of supplies from other markets.