Americas/EMEA base oils demand outlook: Week of 20 May

·        US base oils buyers likely to continue to maintain lean stocks even at a time of year when lube consumption is typically stronger.

·        Expectations of sufficient supply and uncertainty about demand outlook add to attraction of maintaining lower stocks.

·        Latin America’s demand for US base oils supplies could stay muted amid higher US prices, signs of slower end-user demand.

·        More muted demand would coincide with/curb impact of signs of more limited surplus US supplies available for export for now.

·        Mexico’s demand for US base oils supplies could stay more muted amid ongoing slide in country’s finished lube consumption.

·        Demand likely to face additional pressure amid widening premium of US Group II light-grade export prices over heating oil prices.

·        Wide Group II light-grade premium contrasts with steep discount to heating oil prices in Q1 2024.

·        Steep discount coincided with surge in US base oils/lube exports to Mexico that far outpaced country’s finished lube requirements.

·        Fall in Mexico’s lube demand adds to slide in Latin America’s lube consumption in March 2024.

·        Region’s lube consumption falls in March 2024 for third time in four months from year-earlier levels.

·        More muted demand and signs of healthy regional supply likely to curb impact of any drop in availability of spot base oils volumes from US in Q2 2024.

·        Europe’s demand for Group I base oils could get support from concern about tighter supply.

·        Europe’s tighter availability of Group I base oils highlights risk of using the supplies in formulations, incentivizes blenders to use alternative grades instead.

·        Lack of alternative product to replace Group I brightstock could support firmer demand for the heavy-grade base oil in response to tighter-than-expected supply.

·        Europe’s Group III 4cSt (low) premium to domestic Group I SN 150 price holds close to lowest since Q3 2022.

·        Narrow premium boosts incentive for blenders to use more premium-grade base oils.

·        Signs of mixed finished lube demand growth in Europe sustains incentive for blenders to maintain low stocks and to procure smaller volumes more frequently.

·        Overseas demand for Europe’s Group I base oils could ebb amid tighter supply, increasingly high export prices relative to prices in overseas markets.

·        Lower overseas demand could have more limited impact on European refiners, which now face tighter structural availability of supply.

·        Spain’s March lube demand falls year-on-year for first time in ten months.

·        Fall in demand mirrors similar trend in Italy and Portugal.

·        Demand drops in markets that had previously cushioned the sustained fall in lube consumption in Germany and France in 2023.

·        Any extension of slowdown in lube demand in Germany and France would reverse recovery in Europe’s lube consumption in late-2023.

·        Weak demand adds to preference among blenders and base oils suppliers to maintain low stocks.

·        Any extension of demand-weakness in Europe in Q2 2024 would coincide with signs of improving supply of premium-grade base oils.

·        Any such disconnect between supply and demand fundamentals could keep pressure on regional prices.