Americas/EMEA base oils demand outlook: Week of 18 Nov

·        US base oils demand likely to stay weak as buyers focus on cutting stocks.

·        Ongoing fall in prices and signs of healthy availability of supply add to incentive to hold back.

·        Any sign that supply-demand fundamentals are more balanced than usual for the time of year could support demand from buyers that were concerned about market impact of growing surplus supplies.

·        Steady flow of US base oils exports in recent months boost prospect of limiting supply-build.

·        Widening US export price discount to prices in markets like India and Europe raises feasibility of extending that trend.

·        Signs of sharp rise in base oils imports in Nov 2024 could conversely unwind impact of high export volumes and add to concerns about growing surplus, deterring buyers.  

·        Such a scenario already materialises in Sept 2024, cutting net exports to lowest level since H1 2023.

·        Latin America’s base oils demand could get support from signs of relatively balanced supplies heading into Q4 2024.

·        Latin America’s lube demand falls in Sept 2024 for second month from year earlier but at slower pace than previous month.

·        Fall in lube demand lags size of drop in region’s base oils supply in Sept 2024, triggering rise in shortfall to widest level in eleven months.

·        Lack of any supply-build in Q3 2024 could cushion impact of likely slowdown in regional demand in Q4 2024.

·        Any signs of more balanced supply-demand fundamentals in Latin America in Q4 2024 could trigger more rapid recovery in demand for replenishment supplies to meet pick-up in consumption in Q1 2025.

·        Any demand for overseas supplies likely to focus on shipments from US amid less attractive arbitrage from other markets, especially compared with Q3 2024.

·        Peru’s base oils imports in Sept 2024 include surge in supplies from South Korea.

·        Supplies from South Korea exceed import volume from US for first time in almost two years.

·        That scenario unlikely to repeat itself any time soon.

·        Chile’s monthly and 3-month-average base oils imports simultaneously rise in Oct 2024 for first time in four months from year-earlier levels.

·        Fall in Chile’s monthly or 3-month-average shipments in previous three months coincided with slowdown in country’s economic activity in Aug-Sept 2024.

·        Any signs of firmer demand extending to other key markets in Latin America would ease concerns about size/impact of seasonal dip in consumption in Q4 2024.

·        Europe’s base oils demand faces ongoing seasonal slowdown irrespective of supply and price levels.

·        Seasonal slowdown incentivizes refiners to adjust output or to adjust prices in order to clear surplus volumes through export markets.

·        Signs of healthy availability of all base oils grades give buyers the leverage to maintain low stocks and to top up with small volumes as and when required.

·        Europe’s Group II base oils prices maintain wide premium relative to US market.

·        Wide premium points to firm supply-demand fundamentals, boosting incentive to move more supplies to the region.

·        Wide premium contrasts with signs of weaker demand fundamentals, raising prospect of build-up of surplus volumes.

·        Europe’s Group III price differential by contrast weakens vs US and Asia prices in recent weeks.

·        Weaker Group III differential points to weaker supply-demand fundamentals vs US and Asia, starts to increase attraction for overseas refiners to move more supplies to those other markets.

·        Lube demand in some of Europe’s largest markets turns more mixed in Sept 2024.

·        Pace of region's fall in demand slows amid smaller contraction in France and Italy and rising consumption in Spain.

·        Smaller demand contraction and blenders’ low stocks likely increased their feedstock requirements at end-Q3 2024.

·        Expectations that demand growth will stay muted, combined with seasonal slowdown at year-end and healthy availability of supply, incentivize blenders to maintain low stocks.

·        Blenders’ low stocks could curb need before year-end to make large inventory drawdowns.

·        More muted moves to trim stocks, and more frequent moves to top up low stocks, could limit extent of slowdown in base oils demand at year-end and early next year.

·        Any further signs of improvement in lube demand could add to stock-replenishment moves early next year.