Americas/EMEA base oils - week of Feb 19: Demand outlook

·        Seasonal pick-up in US base oils demand would typically start in the coming weeks.

·        Wide gap between US export and domestic prices could prompt buyers to hold back because of concern about price-adjustment that would narrow the gap.

·        Persistent availability of export cargoes adds to signs of sufficient supply, curbing urgency to lock in additional volumes.

·        Overseas demand for US supplies likely to get support from unusually competitive prices.

·        Pick-up in flow of US shipments to West Africa, and cargo offers to India, reflect moves to tap arbitrage opportunities.

·        Latin America likely to require smaller volumes from US early this year amid more muted demand and pick-up in regional supply.

·        Slowdown would contrast with Q4 2023, when Latin America provided ready outlet for wave of supplies from US as lower regional supplies boosted demand for overseas volumes.

·        US base oils exports to Latin America almost match region’s net demand in Oct and Nov 2023 even as US export volumes rise.

·        Any ongoing rise in US exports to Latin America would leave the region facing a rising supply surplus and subsequent drop in requirements to clear the surplus.

·        US base oils exports exceeded Latin America’s net demand throughout most of 2023, when Mexico’s base oils demand exceeded its requirements for lube production.

·        Mexico’s stricter rules on base oil imports likely to force US base oils exports to Latin America to be more closely aligned with region’s net demand this year.

·        Slump in Mexico’s December lube demand likely to cut further the country’s requirements for base oils from the US.

·        Lower demand compounds fall in Latin America’s lube consumption in Dec 2023, adds to pressure on US refiners to move more base oils shipments to other regions instead.

·        Latin American markets like Peru and Guatemala attract more supplies from Indonesia in Dec 2023.

·        Shipments likely consist mostly of Group I bright stock.

·        Shipments point to still-feasible arbitrage even as fob Asia bright stock discount to US export prices narrows sharply in Q4 2023.

·        Shipments compound Asia’s tight supply of bright stock at start of 2024.

·        Europe’s base oils demand likely to remain more muted until buyers are comfortable that prices have bottomed out.

·        Expectations of more muted seasonal rise in demand add to lack of urgency to replenish stocks.

·        Any larger-than-expected seasonal rise in finished lube demand, combined with blenders’ lower inventories, would deplete those stocks faster than usual.

·        Lube demand in Italy, Spain and Portugal rises in Dec 2023 from previous year, extending recovery in consumption in Mediterranean region since middle of last year.

·        Firmer demand cushions impact of still-weak consumption in other key markets like France and Germany, slows size of seasonal slowdown in consumption at year-end.

·        Smaller seasonal drop in consumption follows slide in Europe’s base oils supply in Oct and Nov 2023, curbing size of regional supply-build at year-end.

·        Overseas demand for base oils supplies from Europe could get support from more competitive Group I export prices.

·        Demand in Africa likely to focus more on US Group II supplies.

·        South Africa’s December base oils imports from US rise to highest in more than a decade.

·        Rise in shipments highlights surplus US supplies and competitiveness of US prices.

·        Recent fall in Europe/US export prices boosts feasibility of arbitrage shipments to West Africa.

·        Several cargoes from Europe and US set to reach Nigeria in coming weeks, adding to surge in flows to the West African country in Feb 2024.