Americas/EMEA base oils - week of Oct 16: Demand outlook

·        Americas’ base oils demand faces seasonal slowdown, cautious buying amid crude price volatility, and prospect of reversion to more typical demand trends from Brazil.

·        Expectation of sufficient supply gives blenders the flexibility to hold lower stocks.

·        US gasoline demand falls in early October for second week, reversing sustained recovery in consumption in through Q2-Q3 2023.

·        US’ August base oils imports fall for fourth month, reflecting slowdown in domestic Group III demand this year and increasingly weak Group III prices.

·        Rebound in US Group III prices versus Europe Group III prices in Q3 2023 incentivize refiners to move more shipments to US.

·        Any such pick-up in shipments would coincide with seasonal slowdown in US demand in Q4 2023.

·        Shipments reaching the US from Asia show signs of rising in September and October following slowdown in August.

·        Brazil’s base oils demand could start to slow as wave of imports outpaces fall in domestic base oils output in Q3 2023.

·        Surplus supply rises in response in three months to August to levels that leave market increasingly well covered for round of domestic plant maintenance work starting from Aug 2023.

·        Completion of plant maintenance by late-Q4 2023 and any lingering surplus supply could prompt buyers to cut demand for overseas supplies to avoid major supply-build.  

·        Mexico’s demand for US light-grade base oils could face pressure after rebound in US Group II light-grade prices versus heating oil since late-Aug 2023.

·        Any extension of rebound in US crude/heating oil prices over past week could alter those demand dynamics again.

·        Americas’ July lube demand rises from June, but more slowly than pick-up in regional output.

·        Any extension of that trend through Q3 2023 would trigger rise in surplus supplies, boosting importance of increasing exports and cutting imports.

·        Latin America’s September automobile sales rise for sixteenth time in seventeen months.

·        Auto sales rise strongly in Mexico and Argentina, flip back to growth in Brazil.

·        Europe’s base oils demand likely to wane even in markets showing firmer lube consumption as blenders eye year-end stock management.

·        Portugal’s August lube demand falls for fifth time in six months.

·        Trend incentivizes Europe’s blenders to maintain low lube and base oils stocks.

·        Trend could limit seasonal slowdown in regional base oils consumption in Q4 2023, with blenders’ stocks already at low levels.

·        Spain’s August lube demand rises for third month, highlighting increasingly diverse consumption trends throughout Europe.

·        Diverging pace of lube consumption in different countries in Europe incentivizes refiners to focus on growth regions as blenders use up feedstock supplies more quickly.

·        Blenders in growth markets in Europe likely to continue to maintain low stocks amid uncertainty about outlook and expectations of sufficient supply.

·        Turkey’s August Group I base oils imports from Russia rise to highest this year, while supplies from Europe fall.

·        Trend coincides with increasingly competitive prices for supplies of Russian origin.

·        Trend points to increasingly plentiful supplies in Russia and still-tight supplies in Europe.

·        Trend suggests the shipment of surplus supplies of Russian origin to overseas outlets takes priority over the price of the supplies.

·        Trend reflects the limited number of such overseas outlets and the importance of Turkey as one such outlet.  

·        Trend coincides with and frees up supplies of Turkish origin to move to other markets like Africa.

·        One such shipment loads from Turkey in late-Aug 2023 before moving to Nigeria.

·        Trend cushions impact of limited surplus Group I supplies in Europe in Q3 2023.

·        Trend raises prospect of any surplus supplies in Europe in coming months facing growing competition for outlets like Africa and Mideast Gulf.

·        South Africa’s August base oils imports stay higher than usual, reflecting country’s total reliance on imports to cover its base oils requirements.

·        Supplies from key sources like US and Netherlands hold steady in first eight months of 2023 even as South Africa’s total imports rise.

·        Supplies instead rise strongly from Saudi Arabia and Belgium amid growing competition for the key outlet.

·        US exports to Nigeria almost pause in August as higher US prices make arbitrage less workable.

·        US exports to Nigeria revived in September on resumption of arbitrage flows.

·        Nigeria shows signs of attracting alternative supplies from other markets like Turkey, Russia and Asia.

·        Trend points to persistent global surplus supply and importance of Nigeria as key outlet to clear some of those supplies.

·        Trend curbs leverage for suppliers to raise prices without attracting alternative shipments from other sources.