Americas/EMEA base oils demand outlook: Week of April 1

·        US base oils buying interest could stay cautious even after a rise in refiners’ posted prices, and then higher US export prices in H2 March 2024.

·        A widening posted price premium to domestic spot prices, and a narrowing export price discount to domestic prices, often precede a change in domestic prices.

·        US export prices remain unusually low relative to domestic prices even after their recent rise.

·        US Group II light-grade posted price premium to feedstock prices stays low even after recent price-increase.

·        Price differentials suggest that rise in prices reflected more the impact of higher feedstock costs rather than of tighter supply.

·        Signs of sufficient supply lower prospect of steep rebound in prices, curbing buyers’ need to bring forward their procurement plans.

·        Higher US export prices narrow their discount to prices in key outlets like India, making arbitrage less attractive.

·        Higher US export prices cut their discount to FOB Asia Group II prices, boosting interest in supplies from other markets.

·        Latin America’s base oils demand faces structural slowdown compared with 2023 amid rule-changes and completion of plant maintenance work.

·        Region’s demand for overseas supplies could start to stabilize or improve in markets like Brazil and Mexico, whose imports of US base oils fell sharply at end-2023 and early this year.

·        Prospect of pick-up in Latin America’s lube demand in Q2 2024 from Q1 2024 would add to pick-up in base oils demand.

·        Brazil’s February lube demand rises for second month, with strong increase in engine oils and industrial oils consumption.

·        Brazil’s higher domestic Group I base oils output and supply surplus in early 2024 likely to curb demand for overseas supplies compared with H2 2023.

·        Even so, rising lube consumption likely to support steady demand for overseas supplies of Group II base oils.

·        Argentina’s lube consumption shows signs of extending steep slide in Feb 2024, highlighting mixed demand dynamics throughout Latin America.

·        Europe’s base oils demand likely to get support from seasonal pick-up in lube consumption.

·        Blenders’ strategy of maintaining lower stocks could speed up impact of any seasonal rise in lube demand.

·        Increasingly competitive base oil export prices give sellers more options, could spur regional blenders to speed up procurement plans to lock in supplies at current price levels.

·        Any sign of tighter-than-expected supplies could add to blenders’ moves to replenish inventories.

·        Lube demand shows signs of holding firm in southern Europe in Q1 2024, extending recovery from mid-2023 and contrasting with weaker consumption in northern Europe.

·        Germany’s December lube demand rises for first time year-on-year in fifteen months.

 ·        Germany’s prolonged fall in lube demand until Dec 2023 had been key factor sustaining drop in Europe’s total lube consumption throughout last year.

·        Any extension of Germany’s rise in demand in 2024 would add to prolonged recovery in southern Europe and speed up reversion of Europe’s lube consumption to growth. 

·        Rise in Germany’s demand contrasts with fall in domestic lube production for nineteenth month.

·        Contrasting trends raise prospect of cutting blenders’ inventories.

·        Domestic blenders likely to continue to maintain low inventories until they are confident that recovery in lube demand is set to continue.

·        Impact of any more sustained recovery likely to be more visible from end of first quarter of the year, when market faces seasonal pick-up in consumption.

·        Rise in Germany’s lube demand helps to sustain rise in Europe’s total lube consumption in Dec 2023 for third month.

·        Rise in Europe’s December lube demand contrasts with fall in region’s base oils output.

·        Trend contrasts with fall in demand and supply in Q3 2023 and fall in demand and rise in supply through most of 1H 2023.

·        Any extension of that dynamic of rising demand and falling supply raises prospect of a shrinking supply surplus, a growing need for imports and a drop in export volumes.