· 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..Asia base oils demand outlook: Week of 10 June.Global base oils arb outlook: Week of 10 June.Global base oils cargo flows: 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..Asia base oils demand outlook: Week of 10 June.Global base oils arb outlook: Week of 10 June.Global base oils cargo flows: Week of 10 June