Americas/EMEA base oils demand outlook: Week of 14 Oct

·        US base oils demand set to ebb as buyers focus on cutting inventories over coming weeks.

·        Lower base oils margins and prospect of smaller-than-expected surplus at start of Q4 2024 could curb downward price pressure over coming weeks.

·        Prospect of steadier-to-firm prices could support demand from buyers that had held back on concern about sharper price-drop.

·        Surplus could be smaller than expected after US exports outpace imports in Aug 2024 by largest volume in five months.

·        Surplus could stay lower at start of Q4 2024 following steady flow of shipments to markets like India, Nigeria and Turkey in recent weeks.

·        US Group III base oils demand could get support from prices that stay unusually competitive vs Group II prices.

·        Dynamic sustains incentive for blenders to boost consumption of Group III in place of Group II base oils.

·        Latin America’s base oils buyers likely to keep stocks at lower levels in anticipation of seasonal slowdown in lube consumption.

·        Demand could also get support from smaller-than-expected US supply surplus and less downward price pressure in response.

·        Demand for US supplies could get additional support from less feasible arbitrage to move cargoes from Asia to Americas.

·        Demand for US supplies from more distant markets like India could start to get more support as recent fall in outright prices boosts their competitiveness, especially for heavy grades.

·        US Group II heavy-grade discount to CFR India prices shrinks to narrowest since May 2024.

·        Arbitrage stays shut, but trend points to prospect of growing opportunities.

·        Europe’s base oils demand could get support from blenders’ moves to maintain lower stocks and procure smaller volumes more frequently.

·        Preference to maintain low stocks reflects concern that slowdown in Europe’s lube consumption has yet to bottom out.

·        Lube demand falls in Aug 2024 from year earlier in growing number of European countries.

·        Fall in demand compounds seasonal dip in consumption, leaves blenders’ stocks lasting longer.

·        Fall in lube demand cuts base oils demand, leaving markets like Italy with growing stocks.

·        Europe’s demand for Group I base oils could get support from more competitive prices compared with premium grades.

·        Recent production issues and upcoming plant maintenance could provide further support.

·        Recent weakness of Group I base oils prices relative to Group II/III prices could conversely reflect structural drop in demand for Group I base oils.

·        Any such structural pick-up in requirements for premium-grade base oils could cushion impact of recent rise in their premium relative to Group I base oils.

·        Turkey’s import price discount for Group I base oils from Russia vs base oils from Italy widens to more than $400/tonne in Aug 2024.

·        Discount is widest since end-2022.

·        Widening price discount adds to attraction of maximising imports and consumption of Group I supplies from Russia.

·        Widening price discount vs FOB domestic Europe Group I price adds to attraction of boosting Group I exports from Turkey to Europe.

·        Recent pick-up in shipments from Turkey to Europe duly extends into Aug 2024 for third month.