Americas/EMEA base oils - week of Jan 22: Demand outlook

·        US’ domestic base oils demand could stay more muted amid signs of healthy availability, concern prices may adjust further.

·        US’ domestic spot prices maintain unusually steep premium to export prices.

·        US posted prices maintain steep premium to domestic spot prices.

·        Price spreads are usually at narrower levels.

·        Buyers could hold off until price spreads revert to those narrower levels.

·        Muted domestic demand increases importance of maintaining firm overseas demand.

·        Demand from Latin America could slow down amid expected rise in domestic supplies in Brazil, dip in requirements from Argentina, Mexico.

·        US export prices remain competitive, raising prospect of sustaining its high share of Latin America’s demand.

·        US’ November base oils exports to Latin America rise for seventh time in eight months.

·        Rise in shipments reflects competitive US prices, less feasible arbitrage from other regions.

·        Latin America’s November lube demand growth slows sharply; total consumption falls to ten-month low.

·        More muted lube demand compounds impact of structural slowdown in Mexico’s base oils demand and likely drop in Brazil’s requirements for overseas base oils supplies.

·        Slower demand could complicate US refiners’ ability to clear surplus volumes at end-2023/early 2024.

·        Mexico’s November lube consumption falls for seventh month, but demand for overseas base oils supplies could hold steadier.

·        Narrower November surplus of US base oils exports over Mexico’s lube demand suggests exports are unlikely to fall much further.

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

·        Europe’s finished lube demand shows signs of staying mixed, with firm consumption in Mediterranean region, weaker consumption in northern Europe.  

·        Europe’s demand for Group II base oils could face pressure in short-term as signs of improving supply contrast with relatively high prices.

·        Tighter supply in Q4 2023 coincided with and supported a steady rise in Group II prices during that period relative to other grades and regions.

·        Firm prices keep open the arbitrage to move more supplies from US to Europe.

·        Buyers could hold back in anticipation of an adjustment in prices to reflect the change in fundamentals.

·        Europe’s Group III base oils demand could get support from more competitive prices and signs of a smaller supply overhang at start of the year.

·        Seasonal pick-up in demand likely to gather pace once blenders are comfortable that prices are unlikely to fall.

·        Base oils demand from Nigeria could rise amid signs of a sharp slowdown in flows to the country during Q4 2023.

·        A pick-up in demand would coincide with and provide an outlet for a pick-up in surplus supplies in markets like Europe and US.

·        Shipments to Nigeria would avoid the Suez Canal and Red Sea, adding to their attraction.